What Is the Structure of a Limited Liability Company?

What Is the Structure of a Limited Liability Company?

A limited liability company is one of the most common forms of legal entity under Iranian commercial law. Pursuant to Article 94 of the Iranian Commercial Code, this type of company is formed for commercial purposes by two or more persons, and its capital is not divided into shares. The liability of each partner is limited to the amount of capital that the partner has contributed to the company. This means that if the company becomes indebted, the partners are generally responsible only up to the value of their contributions, and their personal assets are not subject to seizure for the company’s debts.

In practice, registering a limited liability company is often considered a suitable and popular option for small and medium-sized businesses, particularly in services, technology, contracting, and trading. This is largely due to a simpler structure, lower costs, and fewer administrative requirements than in certain joint-stock structures.

Understanding the structure of a limited liability company is essential before starting the registration process. In this type of company, there is typically no board of directors. Management is usually carried out by one or more managers, who may be selected from among the partners or appointed externally. In addition, the transfer of partnership interests generally requires the consent of partners holding at least three-quarters of the company’s capital and must be formalized before a notary public. In short, if you intend to establish a limited liability company, you should become familiar with its structure, features, limitations, and advantages in order to reduce legal risk in the future.

Initial requirements for registering a limited liability company

Before beginning the registration process, the basic legal requirements must be satisfied. The first essential condition is having at least two partners. A limited liability company cannot be formed by a single person. Each partner must have a defined partnership interest, and it must be recorded in the company agreement.

Another key requirement is a lawful and clearly defined business purpose. The company’s activities must comply with the laws of the Islamic Republic of Iran. Certain activities, including those in the medical, security, education, or financial fields, may require specific licenses from competent authorities.

The company’s capital must also be determined. While Iranian law does not set a fixed statutory minimum capital for a limited liability company, in practice registration is commonly initiated with a minimum nominal capital, often referenced as 100,000 tomans. For activities such as participating in public tenders, a higher capital is generally recommended.

Another important step is appointing the manager or managers responsible for administration. A manager may be selected from among the partners or appointed from outside the partnership, provided that the individual has legal capacity, including being at least 18 years old and not legally incapacitated or bankrupt. The term of management may be set as limited or unlimited. For that reason, before registration, core details such as the number of partners, capital, business purpose, and management profile should be carefully reviewed and documented. Proper compliance helps accelerate registration and reduces future legal exposure.

Choosing an appropriate company name

Selecting the company name is one of the most important stages in registering a limited liability company. The proposed name must comply with the Companies Registration Office’s regulations and meet criteria that prevent rejection. First, the name should be in Persian, meaningful, and not already registered. The use of foreign terms, abbreviations, or names inconsistent with recognized national and ethical standards may be rejected.

The company name must not be confusingly similar to an existing registered company name in Iran. To increase the likelihood of approval, applicants typically submit several proposed names through the registration platform for review. In many cases, names are expected to consist of at least three words arranged in a coherent and meaningful combination.

In addition, in a limited liability company, the phrase Limited Liability must appear at the end of the company name. This phrase should also be used on official letterhead, in public notices, and in formal contracts. If the phrase is omitted from official materials, it may expose managers and partners to personal liability toward third parties in certain situations.

A further practical point is the relationship between the company name and the business purpose. If the company operates in import and export, for example, a name that appears unrelated to commercial activity may face a higher risk of rejection. A carefully selected name can accelerate registration and later support branding, marketing, and legal credibility.

Determining the company’s business purpose

One of the most fundamental steps in registering a limited liability company is defining the company’s business purpose. The purpose must be lawful, clear, and capable of implementation. It must be stated precisely in the company agreement and the registration application, and should align with legal requirements.

Common business purposes for limited liability companies include trading activities, consultancy services, contracting, technical and engineering services, domestic and foreign commerce, construction, manufacturing, and distribution. If the intended activity requires licensing, the relevant permits must be obtained from the competent authority. For example, insurance-related activities may require permission from the Central Insurance body, and certain information technology activities may require approval from the relevant professional organization.

It is often advisable to draft the business purpose in a manner that is sufficiently broad to allow future growth without frequent amendments. At the same time, it should not be so vague as to trigger objections from the registration authority. A well-drafted business purpose supports legal clarity, customer confidence, and lawful commercial operation.

Drafting and signing the company agreement

The company agreement is a mandatory and formal document in the registration of a limited liability company. It defines the company’s structure, scope of authority, partners’ contributions, and management arrangements. Because the company agreement governs the partnership relationship, any ambiguity or mistake can lead to serious disputes between partners and may even create grounds for challenges to registration.

The agreement should include key information such as the company name, business purpose, registered address, identity details of the partners, total capital, each partner’s contribution, the names of the managers, the term of management, and the scope of managerial authority. It should also address profit and loss allocation, decision-making procedures for key matters, and dissolution conditions.

All partners are required to sign the company agreement. The signing is typically completed through official registration procedures and is legally binding. If a partner signs without proper authorization or without the others’ knowledge, in a manner inconsistent with legal requirements, it may raise validity risks. The agreement is usually prepared in two copies and filed with the registration authority along with other required documents. Any subsequent amendment must also be formally registered. In practice, the company agreement is often the central document relied upon in legal disputes between partners, which is why legal review and careful drafting are strongly recommended.

Capital and partners’ interests in a limited liability company

Company capital is the financial foundation of the business and plays a central role in the registration process. In a limited liability company, capital is allocated as partnership interests rather than shares that can be freely transferred. Iranian law does not impose a specific minimum capital requirement for this company type, but in practice, the registration authority commonly accepts a nominal minimum amount, often set at 100,000 tomans. Depending on the company’s intended activity and its need for credibility, higher capital may be advisable.

Each partner’s interest must be recorded precisely in the company agreement and related registration documents. Unlike joint stock company shares, partnership interests are not freely transferable. A transfer generally requires approval from partners representing at least three-quarters of the company’s capital, and the transfer must be completed through a formal notarial process.

Capital may be contributed in cash or in kind. Where the contribution is in kind, such as land, a vehicle, or equipment, the asset must be identified and its value assessed, commonly through an official expert valuation. Inaccurate valuation may lead to future disputes among partners. It is also prudent to consider tax implications when selecting capital levels, as higher capital and larger operations may require more detailed accounting and regulatory compliance. Overall, accurate recording of capital and partnership interests promotes transparency of ownership, supports decision-making, and reduces the risk of partner disputes.

Frequently Asked Questions About the Structure of a Limited Liability Company