General Advice on Contracting and Trade in Iran

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General Advice on Contracting and Trade in Iran

General Advice on Contracting and Trade in Iran

Distribution Agreement (DA) is recommended if the client is not interested to get involved in doing business directly in Iran.  Supplier can sell the products Ex Works, receive the payment in advance and invest minimally for marketing in Iran’s market. In this case, client is not also required to obtain license to import commodities to Iran and/or to set up a legal entity and pay tax, social securities and other expenses.

In Iran’s legal system, agency might result in liability of principal (supplier) and agent can create liability for its principal. Therefore, we recommend to choose title of “distribution agreement” instead of agency Agreement.

We would like to draw your attention to these contractual key points:

  • Based on Civil Code of Iran, parties are free to decide about terms of the agreement providing they are not contrary to the explicit provisions of a law. (Article 10, Civil Code)
  • Terms and conditions should meet certain requirements. For instance, conditions which are impossible to fulfill, or useless or unprofitable or against Sharia law are not accepted. If parties agree on such terms and conditions, such condition shall be void. However, this does not have any effect on the whole agreement and the agreement is enforceable. (Article 233, Civil Code)
  • However, terms and conditions which are contrary to the requirements of a contract and terms and conditions which are unknown and of which lack of knowledge entails ignorance of the consideration are void and will nullify the contract. For instance if in a sales agreement parties agree that title shall not be transferred to buyers, then such condition will be against requirement and nature of sales agreement and it will be void and will nullify the contract.
  • Iranian law does not protect distributor against supplier in case of termination of DA without any cause. There is no good will termination or compensation for termination in Iran’s law. Parties can expressly limit other party from raising any claim for compensation in case of termination.

­If the client decides to set up a wholly owned legal entity and to have a control over its operation in Iran, we can introduce the following structures. Foreigners can own 100% of shares or stocks in the followings.

  • Limited Liability Company (LLC)
  • Private Joint Stock Company (PJSC)
  • Branch
  • Representative office

Foreigners can set up a 100% owned foreign company in Iran. Such company can be either a limited liability company (LLC) or private joint stock company (PJSC) at the Company Registry. Shareholders can be foreign individuals or entities. Companies can also be composed of Iranian and foreign shareholders.

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