Non-public companies in Iraq are established in accordance with the Companies Law No (21) of 1997, as amended by Law No (17) of 2019 (“Companies Law”). The Companies Law recognises two types of companies:

• private companies, in which public sector participation, if any, is limited to 25% of share capital; and
• mixed companies, in which private persons and public entities jointly establish an entity with at least 25% public sector participation.

Private companies may take the form of a limited liability company (LLC), joint stock company (JSC), general partnership, individual enterprise or simple company. Mixed companies may only take the form of LLCs or JSCs.

The entities most commonly registered by persons conducting business in Iraq are limited liability companies and branches of foreign companies.

The Companies Law now requires LLCs and JSCs to hold at least 51% Iraqi shareholding capital (by Iraqi individuals or corporations). It should be noted that the Companies Law as amended does not apply to the Kurdistan Region of Iraq (KRI), as to date it has not been passed by the Kurdish Parliament. As a result, 100% foreign participation is permissible in the KRI.

The Iraqi Constitution provides the Kurdish Parliament with legislative powers, with the exception of certain matters that are reserved to the federal government. As far as the Kurdish legislature has not made use of the legislative competencies conferred on it, Iraqi federal law applies if it has been either adopted by the Kurdish legislature or enacted prior to 1992.

On the other hand, the Kurdistan regional government has its own ministries and authorities that mirror those of the federal government; however, they operate independently of the federal authorities. This results in the need to register an entity in parallel in the KRI and in Baghdad.

Unless otherwise expressly indicated, references to any law, instruction or regulation is a reference to such a statute as applied in Federal Iraq.

Limited Liability Company

An LLC may be established by a maximum of 25 shareholders. There is no minimum requirement. The shareholders may be legal entities or individuals, or a combination of both.

The general assembly of shareholders appoints and determines the powers of the managing director, who may be a foreign national.

The minimum capital for an LLC is IQD1 million. Any public subscription of shares in an LLC is prohibited.

Joint Stock Company

A mixed or private JSC is founded by at least five shareholders, and their liability is limited to the amount payable on their shares.

The general assembly of shareholders elects the board of members which governs the JSC. The board of a private JSC is composed of a minimum of five and a maximum of nine members. The board of members then elects the chairman and deputy chairman from among its members. The liability of the board of directors is the same as that of the managing director of an LLC.

The minimum share capital of a JSC is IQD2 million. Unlike an LLC, part of the shares of a JSC must be offered to the public for subscription. The public subscription must be completed before a certificate of establishment can be issued.

Insurance and financial investment companies are required to register as JSCs.

Other possible entities under the Companies Law include the following.

• General Partnership: A general partnership is an association of two or more persons who are jointly and severally liable for partnership debts. The minimum capital requirement is IQD50,000.
• Individual Enterprise: An individual enterprise consists of one natural person who owns the single share and is personally liable for the enterprise’s debts to the full extent of his personal assets.
• Simple Company: A simple company is established by a minimum of two and maximum of five partners. The partners may also contribute to capital through services. The establishment process is, as the name suggests, extremely simple.
• Holding Company: The holding company may be in the form of a JSC or LLC, and has control over one or more JSCs or LLCs. The holding company was introduced as a permissible type of company under the newly amended Companies Law.

Branch of a Foreign Company

A common registered entity is the branch of a foreign company. It should be noted that the commercial activity of the branch is limited to the registered activity of the foreign company. The foreign company would also be liable for any liabilities of the branch. The registration requirements for branches in Iraq are stipulated in Regulations No (2) of 2017 on Foreign Companies’ Branches.

For the registration of a branch in Federal Iraq, the foreign company must have been established at least two years earlier. Any managerial changes must be approved through a shareholders’ resolution by the parent company.

The main source of law related to corporate governance requirements in Iraq is the Companies Law. No code or regulation has to date been enacted specifically to regulate corporate governance matters.

The Companies Law sets out most of the corporate governance rules, determining managerial powers and responsibilities of the different bodies within the company.

The articles of association may also set out rules and requirements, though this is not particularly mentioned in the law. However, the document must at a minimum include the following:

• name and form of the company;
• the company’s objects and type of business;
• address of head office in Iraq;
• name, nationality and profession of founder(s);
• share capital, amount of cash and in-kind contributions, a description of any contributions in kind, and names of the contributors; and
• number of elected members on the board of directors (in a JSC).

Joint-stock companies are the only type of entity in Iraq whose shares may be publicly traded. It is required for a part of the shares to be offered for public subscription.

The chairman or deputy chairman may not also be the managing director of the JSC.

The following committees are to be established comprising members selected from the board of directors:

• audit committee to recommend external, independent auditors; and
• compensation committee to determine the remuneration of board members and the managing director.

Committee members may not be officers, employees or holders of 10% or more of shares in the company.

There are no other key corporate governance rules and requirements to be drawn out in Iraq.

There are no laws or regulations for companies regarding environmental, social and governance (ESG) issues. These provisions may be provided for in the company’s internal policies or articles of association based on standard international practices in this area.

The general assembly of shareholders consists of all members of the company and is considered the highest authority of the company, according to the Companies Law.

The general assembly of an LLC appoints and determines the authorities of the managing director and deputy managing director. The deputy managing director may carry out the managing director’s responsibilities in the latter’s absence. A managing director’s functions involve carrying out the day-to-day business operations of the LLC.

Private JSCs are governed by a board of directors consisting of a minimum of five and a maximum of nine members elected by the general assembly.

Being a member of the board of directors is subject to the following eligibility requirements:

• they must be legally qualified and not banned from managing a company under law or legal decision; and
• they must own no fewer than 1,000 shares – any number below this must be increased to meet the minimum within 30 days of membership.

The board must elect the chairman and deputy chairman from among its members. The managing director is not required to be a board member. However, the managing director may not also be the chairman, and cannot be the managing director of any other joint stock company.

The powers of the board of directors are determined by the Companies Law and mentioned in 3.2 Decisions Made by Particular Bodies.

Shareholders

As the governing body of the LLC, the general assembly of shareholders may deal with any matter that is in the company’s interest. The shareholders appoint, remove and determine wages and powers of the managing director and must also approve the LLC’s budget, final accounts and annual plan.

Managing Director

Under the Companies Law, the responsibilities of the managing director in an LLC are the same as that of the board of directors of the joint stock company, subject to the decisions of the general assembly.

The managing director must carry out the tasks within the powers assigned by the general assembly (or board of directors in the JSC).

Board of Directors

In a JSC, the board of directors must meet at least once every two months at the request of the chairman or any one of its members. The board is responsible for the necessary administrative, financial, planning, organisational and technical duties of the company’s business, except those which fall under the powers of the general assembly. In particular, the board of directors has the following powers:

• appointing the managing director and determining his/her remunerations and authorities;
• dismissing the managing director;
• implementing the general assembly’s decisions and follow-up thereof;
• evaluating an annual plan for the company’s activities as prepared by the managing director;
• preparing final accounts of the previous year, to be reported to the general assembly along with the results of the annual plan;
• following up on implementation of the annual plan with periodic reports to the auditor;
• preparing statistical studies to further develop the company’s business;
• making decisions related to loans, mortgages and securities;
• establishing an audit committee within its board to recommend external, independent auditors; the audit committee is responsible for meeting the auditors and ensuring the accuracy of their work; and
• establishing a compensation committee from its board to recommend the compensations for the board and managing director; these committee members must be impartial and may not be employees or own 10% or more of the company’s shares.

The chairman must sign any decision made by the board of directors and follow up on the implementation of such decisions.

The Shareholders (General Assembly)

The general assembly of shareholders makes decisions through meetings, which are required to be held twice a year, or once a year in the case of a joint stock company. The details of the meeting process are found in 5.3 Shareholder Meetings.

The Board of Directors

The board of directors must meet seven days after the formation of a company and shall elect the chairman and deputy chairman for a one-year term that is renewable.

The board of directors is required to meet at least once every two months at the invitation of the chairman or any of its other members. The meeting should be held at the company’s head office or as determined by the chairman if the head office is not an option at that time.

Board decisions are reached through an absolute majority of the votes. In the case of a tie, the chairman’s vote prevails.

The board of directors is composed of between five and nine members elected by the general assembly. The membership lasts three years and is renewable. The board of directors appoints a chairman and deputy chairman.

In a mixed JSC, the board of directors consists of seven members, two of whom represent the public sector and five of whom are elected by the general assembly. The composition would be three and four members respectively if the public sector’s share capital exceeds 50%.

Board Members

The board members appoint and dismiss the managing directors, carry out the general assembly decisions, prepare final accounts, and handle the administrative, financial, planning, organisational and technical duties of the company, as stated in the Companies Law.

Chairman

The chairman is required to follow up on the implementation of the decisions made by the board of directors. The chairman’s vote determines the result of the board decisions whenever there is a tie.

Deputy Chairman

The deputy chairman, also appointed by the board of directors, shall replace the chairman in his absence. The deputy chairman may not become the managing director.

There must be between five and nine members of the board of directors in a private JSC. Each board member must own at least 1,000 shares in the company. The board members may be freely determined by the shareholders, as long as they are legally qualified under the applicable laws.

LLC

The managing director and deputy managing director of an LLC are appointed by the general assembly and may only be removed by the general assembly.

The LLC must also have one auditor and one legal adviser, who must be Iraqi nationals. These officers are also appointed and dismissed by the general assembly.

JSC

The general assembly may elect or dismiss a chairman or board member through a secret ballot held during its meeting. The chairman or deputy may also be considered as having resigned if they fail to attend three consecutive meetings or successive meetings for over six months and without a legitimate reason.

The board of directors appoints a managing director and has the power to remove him/her through a decision. The decision must cite the reasons for removing the managing director and should be signed by the chairman. The same steps apply for the appointment and removal of a deputy managing director.

There are no restrictions on who may be appointed as managing director of a company.

The Companies Law states that the chairman or board members cannot have any direct or indirect interest in any business or transaction undertaken by the company, except where the general assembly grants approval after being made aware of the nature and extent of the interests. The chairman or board member will be directly liable for any damage that may arise in violation of that rule.

Voting on a matter in which the chairman or board member has direct or indirect interests is also prohibited unless a majority of the members grant permission after the nature and extent of the interests are disclosed.

The Companies Law provides that the chairman and members of the board of directors shall do their best to serve the company’s interests and run the company in a sound and legal manner. They are liable to the general assembly in carrying out these duties.

They must also disclose any direct or indirect interests they have with regard to any transactions and dealings with the company.

Directors are responsible before the general assembly in carrying out their duties. They are required to serve the interests of the company as they would their own personal interests.

An inspection may be requested by a shareholder of more than 10% of share capital, the managing director of a company, or a member of the board of directors in the case of a JSC, if there are reasonable grounds to believe that there is a violation of law, shareholders’ resolution or the company’s articles of association.

The inspectors will be determined by the Registrar of Companies (“Registrar”), who would then inform the relevant authorities so that action may be taken if there is a breach of duties by a director or manager. The Registrar would also guide the company based on the findings of the report.

Directors or officers shall be held liable if the duties mentioned in 4.6 Legal Duties of Directors/Officers are proven to be violated.

The liability of LLC shareholders towards third parties is limited to the nominal value of their shareholding. However, Iraqi courts have yet to develop a consistent doctrine concerning the liability of shareholders and/or managers towards third parties.

All payments to current or previous board members or managing directors must be included in a detailed report on the final accounts to be submitted to the shareholders.

The shareholders determine the remuneration of the managing director of an LLC.

In a JSC, the general assembly of shareholders fixes the remuneration of the chairman, deputy chairman and other members of the board of directors, which must be in proportion to the latter’s scope of work and fulfilment of the company’s plans and profits. The board of directors determines the remuneration of the managing director.

Although the consequence is not specified in the law for non-compliance with the approval requirements, inspections may be carried out by the Registrar, who must inform the responsible authorities of any questionable findings in their report in order for the appropriate action to be taken. This could lead to suspension of the company’s file at the Registrar and possible fines.

No public disclosures with regard to remuneration, fees or benefits to directors or officers are required to be made.

As mentioned previously, the final accounts report disclosed to the shareholders must include the payments received by board members or the managing director in cash or in kind.

The Companies Law governs the relationship between the company and its shareholders.

Shareholders may not use their powers and voting rights for their own personal gain and make decisions which harm or put the company at a disadvantage. Furthermore, they may not withdraw capital or transfer assets if prohibited or if insolvency is imminent.

Shareholders of over 10% of the shares of a company may propose items to be included in the agenda of the general assembly meeting, which must then be passed by the majority of shareholders present there.

The general assembly of shareholders has the following powers in the company:

• fixing remuneration of chairman and board members;
• discussing and approving the report of the founder/s regarding establishment procedures;
• electing and dismissing representatives of shareholders within the board of directors;
• making decisions on reports from the board of directors or managing director, as well as the auditor;
• discussing and approving final accounts;
• discussing and approving the proposed annual plan and budget (not applicable to JSCs);
• appointing and fixing remuneration of the auditor (not applicable to JSCs);
• making decisions on proposals regarding loans, mortgages and securities (for LLCs);
• approving the percentage of profits to distribute among members; and
• approving employment rules in the case of a mixed joint-stock company.

According to the Companies Law, the general assembly of shareholders is the governing body of the company. It is the body which elects and dismisses representatives of shareholders in the board of directors.

The general assembly of shareholders also makes decisions on the reports from the managing director of the company or board of directors of a JSC, as well as the auditor’s reports. It is also authorised to appoint and determine the wages of an auditor, and approve the company’s final accounts, proposed annual plan and budget, except in the case of a JSC. Other matters include decisions on borrowing. In the JSC, the shareholders determine the wages of the board of directors, including the chairman and deputy chairman.

Iraqi law does not distinguish between ordinary and extraordinary shareholders’ meetings.

The general assembly is required to hold two meetings a year, or once a year if it is a joint stock company, by invitation of the founder(s) of the company (for the constituent meeting held within 30 days of the issuance of the company’s certificate of establishment), chairman of the joint stock company or managing director in other companies, or at the request of members of the company who own at least 10% of the paid-up capital. The meeting may also be called upon by the Registrar or the auditor.

General assembly resolutions are passed through a simple majority of votes. Votes may be made in person or by proxy. A proxy may be issued to another shareholder or a third party, and must be deposited with the company three days prior to the meeting. Resolutions may not be passed unless a majority of the members are present.

In an LLC, the general assembly may determine appointments, wages and managerial authority, as well as approve budgets and annual plans. In the JSC, the general assembly elects and determines the wages of the board of directors.

Decisions by the general assembly are to be kept in a special register and signed by the chairman.

The company administration should inform members of their invitation to the meeting or send it to their postal addresses. In a JSC, the invitation to a meeting must be issued in the Registrar’s bulletin, two daily newspapers and the Baghdad Stock Exchange.

Shareholders who hold at least 10% of the share capital may request inspection of the company if there are reasonable grounds to believe that the company has violated a provision of the Companies Law, the company’s articles of association, or a resolution passed by the general assembly.

Shareholders who hold at least 5% of the shares may object to a resolution of the general assembly by petition to the Registrar within seven days of the resolution being passed.

The Registrar must be provided with all data in relation to the subscription process, the names of subscribers and number of shares, and amounts paid against the value of shares.

There are no specific obligations in relation to the ultimate beneficial owner of publicly traded companies. The owner of record is the legal owner as far as the authorities are concerned.

The managing director of a company is required to prepare the final accounts within the first six months of each year, write a detailed report on them, and submit them all to the general assembly. In a JSC, the board of directors is responsible for this. The board must also submit periodic reports to the auditor and an annual report to the general assembly regarding the results of the implementation of the annual plan.

The final accounts would also be audited by external auditors appointed by the general assembly. The auditors will provide a report to the company that addresses their findings and the extent of the accounts’ compliance with the law and the company’s articles of association.

Copies of the final accounts and the related reports must be submitted to the Registrar.

Companies are required to submit a UBO form to the authorities, disclosing the shareholders, board members and manager of the company.

The general assembly meeting notes and decisions should be recorded in the minutes of the meeting and sent to the Registrar within four days of being implemented. Copies of the final accounts, annual plan and related reports must also be sent to the Registrar.

General assembly meetings regarding the final accounts must be notified to the Registrar, and the following must be sent:

• the annual list;
• the final accounts of the previous year and the auditor’s report; and
• the managing director’s or board of directors’ report on the annual plan of the previous year.

The Registrar is entitled to obtain any document from the company for the purpose of carrying out its responsibilities under law.

Companies are now required to present evidence of an Iraqi top-level domain (.iq) and an Iraqi Post Office Box (PO Box) filed by the company. This is required for all companies registered in Federal Iraq.

None of the filings made with or sent to the Registrar are made publicly available.

The company may be subject to inspection by the Registrar for any violation of the aforementioned. Any questionable findings will be reported to the responsible authorities in order for the appropriate action to be taken and will lead to suspension of the company’s file and payment of fines. If the Registrar is prevented from seeing the company’s records or documents, the company official responsible for this action shall be, according to the Companies Law, subject to imprisonment for up to six months or a fine of up to IQD12 million.

External auditors are appointed by the general assembly and are required to evaluate a company’s final accounts based on the law and the company’s articles of association, and should apply international accounting standards.

In a JSC, external auditors are selected by the audit committee established by the board of directors. The external auditors meet with the audit committee and apply international accounting standards in their work. They may be subject to questions regarding the accuracy and correctness of their reports.

In a mixed company, the accounts are required to be audited by the Financial Control Bureau.

The board of directors of a JSC is required to establish an audit committee within the board that will recommend external, independent auditors. These members may not be officers or employees of the company, or hold 10% or more of its shares.

The board of directors of a JSC, or managing director in the case of other companies, must also prepare a report in relation to the final accounts that includes details on the company’s activities, such as any transaction in which major shareholders, board members or the directors have a direct or indirect interest.

The chairman of a JSC, or managing director in the case of other companies, must sign the company’s final accounts and shall be liable for the correctness of the statements.