What Points You Need to Consider When Signing a Contract in Iran?

What Points You Need to Consider When Signing a Contract in Iran?

What Points You Need to Consider When Signing a Contract in Iran?


What Points You Need to Consider When Signing a Contract in Iran?

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Considering below points can be helpful in signing a contract:

  1. Be aware of the Custom role; custom and practices have several functions in Iranian Legal system. One of the most important roles of custom is that it’s a supplementary resource in Iranian Law.
  2.  Be aware that “Private contracts” are somehow distinct from “Public Contracts,” each one is ruled by a certain set of legal principles.
  3.  It would be very helpful if you determine the dispute settlement methods in your contract.
  4.  An important point that should be considered when you conclude a contract with a company in Iran is that you need to be sure about the position of Iranian party in his/her company. In other words, you should sign a contract with the official signatory of the company or his/her representative so that your contract becomes valid.

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Contract and Commercial Law

Does the Iranian company law provide for the possibility to be flexible to certain extent to accommodate the provisions of the shareholder agreement?

Rules of Iran’s Commercial Act can be divided into two categories. The first category contains rules that are imperative and shareholders’ agreement cannot change them. For example, those rules regarding the quorum necessary set up the Board of Directors or the General Assembly are imperative and shareholders cannot alter them.

On the other hand, some of its rules are supplementary, which means shareholders would be able to change them by their agreement. For example, shareholders can agree on the method of transferring company’s share (in Private Joint-Stock companies).

General Speaking, Iran’s Commercial Act has flexible rules regarding the corporation matters and shareholders can adjust them to their needs. Notwithstanding, it is advisable that a professional legal team draft or modify the shareholders’ agreement so that it becomes compatible with the Iran’s Commercial Act.

Signing a Contract

Is a put option to force purchase of shares in a shareholder’s agreement valid and enforceable in Iran?

In the put option clause, which is usually used in two-partner joint ventures, parties agree that if certain circumstances happened (such as deadlock in decision making, or breaching the agreement obligations), one of the parties would be able to force the other party to buy his share in the joint venture.

According to the Iran’s law, the only way to enforce the “put option” is to give an irrevocable power of attorney to the party who wants to enforce the “put option”. Accordingly, one of the party give an authority to the other party to transfer the share from himself to the other party, or sell the other party’s share to someone else.

Governing Law

Description of Governing Law in Iranian legal system

Article 968 of the Iran Civil Code reads as follows: “Obligations arising out of contracts are subject to lex loci contractus except where both of the parties are foreign citizens who have explicitly or implicitly subjected the contract to another law.” (lex loci contractus is the Latin term for “law of the place where the contract is made”)

The prima facie consequences of the above article are:

  1. Only the laws of the place of concluding a contract shall apply to it if at least one of the parties to the contract is Iranian.
  2.  Where both of the parties are foreign citizens, they are free to subject their contract to a law other than lex loci contractus.
  3.  The intention of the foreign citizens to avoid application of lex loci contractus must be declared by the parties explicitly or implicitly.

These consequences are based on an interpretation of article 968 that considers it a mandatory provision of the Iran Civil Code. Under a more liberal interpretation, article 968 is a facultative provision allowing the parties to adopt any law as the governing law of their contract.

Our team is composed of highly skilled and versatile lawyers who combine practical experience and academic knowledge of their field. Most of our practitioners have worked in different professional environments, often outside their home jurisdiction.

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