Setting Up a Joint Venture in Iraq
Corporate Commercial / Iraq
Ali Al DabbaghSenior Associate,Dispute Resolution
Disclaimer: This Article expresses the opinions of the author and should not be viewed as a substitute for tailored legal advice. The Article contains comparisons between federal Iraq and Kurdistan, however, the focus is on federal Iraq.
This Article will discuss the popular available options for setting up an incorporated joint venture in Iraq, for un-incorporated joint ventures see previous Law Update Article titled “Partnerships in Iraq” by the same author. This Article will focus on the differences between an Iraqi limited liability company and a branch of a foreign company and highlight the advantages and disadvantages of each corporate form.
An Iraqi LLC offers separate legal personality with limitation of liability. The LLC is government by Iraqi Company Law No. 21 of 1997 as amended (hereafter the “Company Law”). Different version s of the Company Law are applied in Federal Iraq and Kurdistan, this is because Kurdistan have not adopted the latest amendment of the Company Law in 2019. The main difference between federal Iraq and Kurdistan is that establishing an LLC in federal Iraq requires %51 Iraqi ownership while an LLC in Kurdistan can be %100 owned by non-Iraqis.
LLC’s established in Kurdistan cannot operate in federal Iraq without establishing a branch and this is not possible if they are not in compliance with the federal requirements.
LLCs in Iraq do not have a board of directors. Rather, am executive manager possessing all executive authority. A deputy managing director may also be appointed in federal Iraq and they may share some or all of their powers with the executive manager. The powers of the executive manager and his deputy are specified in the shareholder resolution appointing them.
LLCs in Iraq can only have one class of shares which must be issued at a nominal value of one Iraqi dinars per share and each share has only one vote.
The Shareholders act as the main decision-making body for LLCs, defining the extent of the executive manager’s authority. All meetings must occur in person in Iraq, and the shareholders have the option to appoint proxies. The minimum number of shareholders is one (1) and the maximum is twenty-five (25).
Iraqi LLCs are considered Iraqi nationals even though they may be partly owned by non-Iraqis and as such they can own real estate and as well as undertake other activities restricted to Iraqi nationals provided that there is no further restriction of full Iraqi ownership.
Iraqi LLCs offer limitation of liability and Iraqi nationality; however Iraqi LLCs are subject to Iraqi Company Law and in federal Iraq must be %51 owned by Iraqi nationals.
Branch Offices are considered an extension of the foreign company and the foreign company is directly liable for the acts of its Branch Office in Iraq. There are no foreign ownership restrictions for establishing a branch office since the company is governed by the corporate law of its home jurisdiction and its Branch Office is inherently an extension of the foreign company. In federal Iraq a foreign company must be at least one year old and showing no loss on its accounts to establish a Branch Office.
Branch Offices are managed by a branch manager appointed by the foreign company by way of a board or shareholder resolution designating their authorities. Using a branch office offers more fixability with regards to corporate governance because the internal affairs of the foreign company are not governed by the rigid rules of the Company Law. For example, the foreign Company can have multiple classes of shares and can also have shareholder agreements which are not possible in Iraq.
In Federal Iraq, a Branch Office must satisfy one of the following requirements within four (4) years of establishment or it would be struck from the Company Registry Records.
hold a contract with an Iraqi state entity or public company;
hold an investment license;
hold a permit granted by a relevant sectoral Iraqi authority; or
hold a private sector contract with a value of not less than USD 1,000,000.
The Branch Office would also by struck from the Company Registry records if it fails to submit its financial statements for two consecutive years from registration.
In Kurdistan, it is not required for Branch Offices to meet any of these post-incorporation conditions to commence commercial activities in the jurisdiction.
Branch Offices are considered foreign nationals and are restricted from activities that are limited to Iraqis and are also restricted from owning real estate except for limited circumstances such as holding an investment license and undertaking construction works to build residential units. Branch Offices of foreign companies can lease land for up to 50 years for Industrial projects.
Iraqi LLCs offer limitation of liability and Iraqi nationality; however Iraqi LLCs under Iraqi Company Law in federal Iraq must be %51 owned by Iraqi nationals. The Iraqi Company Law would not allow for shareholder arrangements or multiple clases of shares which would result in a breach of this requirement. In contrast, Branch Offices are not restricted to 49% foreign ownership by the Iraqi Company Law because they are not legal persons themselves but extensions of foreign non-Iraqi legal persons / companies. For this reason Branch Offices offer no limitation of liability because they are an extension of the foreign company that establishes the Branch Office. A foreign company must be at least one year old and show no loss in its account to establish a Branch Office in federal Iraq.
For further information,please contact Ali Al Dabbagh.
Published in February 2025