A) Legal Forms of Company Formation

Foreign companies wishing to have a presence in Iran may register companies under a number of different formats. There are seven different types of business associations provided for in Iran's Commercial Code. These consist of:

Joint Stock Company: The most common and relevant forms of business association in Iran are the private joint stock company ( Sherkat-e- Sahami Khass) and the public joint stock company (Sherkat-e- Sahami Aam). The joint stock company is

defined by law as a company whose capital is divided into shares and the liability of whose shareholders is limited to the par value of their shares. The main difference between a private joint stock company and a public joint company is the fact that a public joint stock company may offer its shares and debt securities to the public while a private company may not. Of the two, the private joint stock company is the more popular form of doing business in Iran and perhaps the most suitable as foreign investments are concerned. Joint stock companies must be formed with a minimum of three shareholders for a private company and five shareholders for a public company.

The shareholders of a joint company participate in the ownership, profit, losses and liquidation of a company in direct proportion to their share holding. The liability of each shareholder is limited to the par value of his/her shares and in the absence of fraud there is no recourse to shareholder. As such, a joint stock company under Iranian law holds a separate juridical personality and can sue or be sued in its own name. The minimum share capital at the time of formation is Rls. 1 million for private company and Rls. 5 million for public company's. Payment can be made either in cash or in kind for a public joint stock company and a minimum of 20% of the share capital should be made available to the general public. Management of a joint stock company is through a board of directors elected by shareholders. Should a board member reside abroad, delegation of power to resident board members is permitted, however the articles of association of the company must authorize such a delegation of power. Shareholders possess the usual rights held by their counterparts in other countries such as the right to attend shareholder meetings, receive financial reports, elect/replace board members and vote on a major company decisions.

Limited Liability Company: A limited liability company (sherkat ba massouliat mahdoud) is defined as a company formed by two or more persons for the purpose of trading. Liability is based upon the direct contributions of the partners to the partnership and not by share subscription. The formation of a limited liability partnership is deemed to have taken place when the capital in cash has been fully contributed and when non-cash contributions have been assessed and delivered. The name of the company must always include the phrase "limited liability" otherwise under the law the company will be considered as a general partnership.

General Partnership: A general partnership (sherkat - e- tazamoni) is one formed between two or more persons with joint and several responsibility. Such a company must be under a common name of at least one of the partners and the term "General Partnership" must appear in the name of the company. The formation of a general partnership is deemed to have taken place when all the capital in cash has been paid and non-capital contributions have been assessed and delivered. Under the framework of a general partnership, a partner may not transfer shares without the consent of the other partners. Each partner is directly liable for the company's debts even if the amount of the debt is higher than that of the partner's capital contribution. A General Partnership can be converted to a Joint Stock company with the unanimous consent of the partners.

Joint Stock Partnership: A joint stock partnership (sherkat - e- mokhtalet sahami) is formed under a common framework comprising of a number of share holding partners and one or several with unlimited liability. Under this framework, the general partner is one whose capital is not represented by share and is fully liable for company debts

whereas the limited partners are only liable for the extent of the amount of capital they have contributed to the partnership. Management participation is divided between a Board of Directors composed of at least three partners whereas the management of the partnership is exclusively retained by the partners with unlimited liability.

Limited Partnership: A limited partnership (sherkat-e-mokhtalet-e-ghair-e- sahami) is formed when the purpose of the company is for trading, under a common title, without the issuance of any shares and with one or more of the partners being a general partner and the other partner(s) being with limited liability. The term "limited partnership" along with the name of one of the partners must appear in the firm's title. Under such a framework, general partners are liable for the any debts or liabilities that may be incurred in excess of the firm's assets whereas the limited partners are only liable to the extent of their contributions to the partnership. Management in a limited partnership is retained exclusively in the hands of the partners with unlimited liability whereas a limited partner has no rights or obligations in the management of the firm.

Proportional Liability Partnership: A proportional liability partnership( sherkat-e-nesbi) is one formed for the purpose of trading, under a common name of two or more persons, with liability proportionately divided by the amount of contributions to the firm. In a proportional liability company , the term 'proportional liability partnership' must appear together with the name of at least one of the partners. If the company's assets are deemed to be insufficient to meet the company's liabilities, each partner becomes liable in proportion to the amount of the share subscription.

Manufacturing / Consumer Co-operatives: Cooperatives ( Taavoni) are generally formed within the framework governing joint stock companies, with the primary difference being that no member is entitled to more than one vote. A Manufacturing Cooperative (sherkat-e-taavoni -tolidi) is formed by craftsmen for the production and sale of goods that they produce in common. A Consumers Cooperative (sherkat -e-taavoni-masraf) is produced with the aim of the purchase and re-sale of goods (either manufactured by the members or purchased elsewhere). Profits and losses are distributed among members in proportion to the purchases made by them.

In all of the above frameworks, commercial companies become legal entities from the day their title is recorded in the Bureau of Company Registration.

B) Branch Offices

A non-Iranian company may carry out its sales and service activities via a branch office in Iran. Under Iranian Law, a branch does not hold the status of a separate legal entity, though it will have its own office and assets in Iran. Rather, according to Articles 3 and 4 of the Iranian Registration of Companies Act, a foreign company that wishes to carry out economic activities in Iran must already have been recognized in its home country as a legal entity and then duly registered in Iran. A branch manager which is appointed by the parent company's board of directors, is to run the branch's activities in Iran.

A branch office is subject to taxation on any profits earned in Iran and in cases where the company is a contractor, the branch is responsible for income tax on the work performed in Iran. The procedure for setting up a branch are generally the same as that of a joint stock company. It should be noted however that the Articles of Association of the Parent Company as well as a Board of Directors resolution specifically authorizing the opening of the branch office in Iran must be submitted in addition to other required documentation for registration in Iran.