Public and Private Joint Stock Companies

Public and Private Joint Stock Companies

With the advancement of modern urban life and the expansion of economic activities, individuals increasingly seek to pursue profit and collective interests through cooperation.

Over time, this approach led to the formalization of such cooperation through contracts and the establishment of companies.

Once registered, companies acquire legal personality. As a result, they enjoy rights and bear obligations similar to those of natural persons and may fully exercise the legal privileges granted to them.

One of the most important aspects of establishing a company is obtaining a national identification number, which helps prevent misuse. Today, companies are not permitted to operate legally without this identifier.

Management and Supervisory Structure in Joint Stock Companies

Types of Companies Under Iranian Commercial Law

Under Iranian Commercial Law, companies are classified as follows:

• Joint stock companies, including public and private joint stock companies.
• Cooperative companies.
• General partnership companies.
• Proportional liability companies.
• Mixed joint stock companies.
• Mixed non-joint stock companies.
• Limited liability companies.

Joint Stock Companies

Pursuant to Article One of the Amendment to Part of the Commercial Code, in joint stock companies, the capital is divided into shares, and the liability of shareholders is limited to the amount they have invested in the company.

Each portion of the divided capital is referred to as a share, and each shareholder is liable for the company’s debts only up to the value of their shares.

Joint-stock companies are divided into two categories: public and private. The concept and differences between these two forms are explained below.

Public Joint Stock Companies

Public joint stock companies are typically established for large-scale construction, industrial, and commercial projects. In such companies, founders raise part of the company’s capital by selling shares to the general public. In public joint-stock companies, at least fifty-one percent of the shares are held by the public, and the founders may offer a portion of the company’s capital to the public in the form of shares.

This process is carried out through a public announcement containing information about the company under formation. The announcement includes details such as the subscription period, the cash amount payable, the share price, and the designated bank and branch. These announcements are published in newspapers, enabling the public to subscribe for shares. Such notices are known as subscription announcements and constitute a fundamental element in the formation of public joint stock companies.

In this type of company, shareholders may freely sell their shares on the stock exchange and transfer ownership to others. Public joint stock companies facilitate large-scale economic activity by aggregating small individual investments into substantial capital. Transfer of shares in public joint-stock companies does not require the consent of other shareholders and can be carried out with relative ease.

Private Joint Stock Companies

A private joint stock company is one in which the entire capital is provided by the founders at the time of incorporation. The shares of such companies are not offered to the public and may not be traded on the stock exchange. However, private transactions of shares between individuals are permitted.

In private joint stock companies, the founders must fully subscribe to the capital, and a portion of it must be deposited with a bank.

Similar to limited liability companies, each shareholder in a private joint stock company is liable for losses only in proportion to their investment. There is no obligation for shareholders to satisfy the company’s debts from their personal assets.

Differences Between Public and Private Joint Stock Companies

• The establishment of a public joint stock company requires public subscription, whereas private joint stock companies are not permitted to raise capital from the general public.
• Private joint-stock companies are not allowed to list on the stock exchange, while public joint-stock companies may offer their shares on the market.
• The minimum number of directors and shareholders is three in private joint-stock companies and five in public joint-stock companies.
• The issuance of bonds is permitted only by public joint-stock companies.
• Transfer of shares in private joint stock companies requires the approval of the company’s directors and general assemblies. In contrast, in public joint stock companies, shareholder consent is not required for share transfers.
• The designation public joint stock company or private joint stock company must be clearly and legibly stated before or after the company name in all official documents, notices, and announcements.

Frequently Asked Questions About Public and Private Joint Stock Companies