While shareholders in a limited liability company can transfer ownership of their shares to another shareholder or outsiders, they should bear in mind certain considerations, such as the notification requirements when selling shares, the procedure for selling shares to non-shareholders and the contractual requirements therein.
Contracts can be a valuable tool to help foreign businesspeople deal with issues in Iraqi law, such as the inability of foreigners to own real estate in Iraq and the inability of non-Arab foreigners to own interests in Iraqi companies. However, there are some important differences between Iraqi and common law legal systems, including in regards to legislative and judicial restrictions on interest, remedies for breach of contract and the statute of limitations.
Investment Law 13/2006 is the main text governing investment in Iraq. It encourages foreign investments by granting facilities in order to develop certain sectors in Iraq, create job opportunities and transmit know-how to the Iraqi population. Not only has the law created numerous advantages for investors, it has also made the administrative process for obtaining investment licences much easier.
While Iraq places no constraints on foreigners selling products, foreign companies seeking to enter the market must first consider their options. A foreign principal that wishes to export its merchandise and sell it in Iraq can enter into an agreement with an agent, distributor or representative, or even start trading itself. However, the trend is towards establishing distribution agreements or commercial agencies and, although similar, the two regimes are not the same.
An international non-governmental organisation (NGO) must register to carry on its conceived activities in Iraq. The authority for registering and regulating NGOs has changed a number of times over the years. Although the requirements for registration have not changed significantly, there have been differing interpretations of the requirements and a general desire by the regulatory authority to seek more information.
Iraq and the Kurdistan Region's investment laws provide significant benefits for investors in qualified projects, principally tax and customs fees and duty exemptions. Amendments to this law are before the region's Parliament. While these laws continue to be developed, the roles played by the investment agencies are rapidly becoming more prominent.
Kurdistan today enjoys a surprisingly accessible and secure business investment climate. It is currently an attractive destination for investors and contractors. However, there remains considerable political, legal and security risk associated with working in the region. The security risk associated with operating in Iraq must be considered before contemplating investment or contracting in Kurdistan.
Any company seeking to conduct commercial activities in Iraq must register to do business in the country. While the Companies Regulations provide for the establishment of five different kinds of private company, registration options for a foreign corporation are confined to a limited liability company or a branch of a validly incorporated foreign company.
With the publication of the new Investment Law in the Official Gazette on January 17 2007, the Iraqi government has begun to re-implement the company laws and regulations that existed under Saddam Hussein's regime, replacing many of the changes introduced by the Coalition Provisional Authority.
The National Assembly has passed a new investment law, repealing Coalition Provisional Authority Order 39/2004, which established the basis on which foreign investment in Iraq was to be conducted following the fall of Saddam Hussein's regime. The new law seeks to establish the framework for the conduct of foreign and domestic investment in Iraq.
The National Assembly of Iraqi Kurdistan has enacted the Investment Law of the Iraqi Kurdistan Region. The law replaces the Investment Decree, which granted incentives and guarantees to investors in Kurdistan, and implements a more stable and secure regime for domestic and foreign investment in the region.
The Iraqi government has drafted a new law to provide guarantees and incentives for investment in Iraq. The new law is intended to replace Coalition Provisional Authority Order 39/2003, which established the basis on which foreigners could invest in Iraq.
New regulations have come into force to require the approval of the Residency Department of the Ministry of Interior for all applications to register domestic companies with foreign shareholders. The new regulations add an element of uncertainty as to the time required for company establishment, presenting a further obstacle to foreign investors.
The process of registering a company in Iraq begins with the registration of a trade name with the local chamber of commerce and the Iraqi Federation of Chambers of Commerce. Despite an overhaul of company registration procedures under the Coalition Provisional Authority, the process of trade name registration remains unaddressed.
Following the fall of Saddam Hussein's regime, the Coalition Provisional Authority (CPA) has issued numerous new laws and amendments to existing laws. Several of these deal with company and commercial law issues. As the transition period winds to a close, the CPA orders affecting company and commercial laws are gaining wider recognition and application by Iraqi authorities.
According to Article 2 of the new Regulation 2/2004, foreign companies may not carry out commercial activities in Kurdistan-Iraq unless they have registered a branch for these activities in accordance with the regulation. For the time being, the authorities in Kurdistan are of the opinion that such registration is required even if the foreign company has a branch registered in Baghdad.
Previously, any foreign participation in any kind of company in Iraq was prohibited. However, a new order issued by the Coalition Provisional Authority expressly permits foreign natural or legal persons to establish or participate in Iraqi companies and partnerships. Among other things, it also expedites the registration procedure for companies established in Iraq.
Before the war in Iraq, a contract with specific entities - usually the government or state-owned companies - was required to establish a branch, while representative offices were not permitted to conduct any business activities. This situation has been overhauled with the introduction of a new regime governing the registration and operation of branches and trade representation offices.
The Iraqi Civil Code adopts the principle of freedom of contract. However, freedom of contract is not without limits and is restricted by some mandatory provisions in statutes enacted in order to protect weaker parties. Generally, a contract between commercial parties binds them to the terms of the contract.
Currently, it is still impossible for foreigners to register a company in Iraq, due to the lack of implementing regulations. The stalemate has been due to tensions between the Coalition Provisional Authority and parts of the Governing Council and the business community which favour a more protectionist approach to foreign investment.