What should be checked legally before buying into an Iraqi company?
Buying a stake in an existing company, or coming in as a new partner, is not just buying a trade name: the buyer inherits its contracts, debts, staff and official files. The Law Office of Ali Barakat, in Baghdad, al-Yarmouk, sets out the list to work through before signing, grounded in Companies Law No. 21 of 1997 as amended and related statutes.
1. Does the company really exist, and on what contract?
Start with the certificate of incorporation, which proves the company's legal personality from the date it was issued, under article 22. Then the company contract and every registered amendment held by the Registrar of Companies: name, type, head office, purpose, capital and its split, and the founders and their shares, under article 13. Compare the contract with what the seller says; the shares on offer must actually stand in the seller's name. Amending the contract after the purchase is covered in Amending the company contract.
2. Can these shares be transferred at all?
Article 64 bars a private-sector shareholder from transferring shares in four cases: they are pledged, attached or frozen by court order; their certificate is lost and has not been replaced; the company has a claim on them; or the buyer is legally barred from holding company shares. In a joint-stock company, founders cannot sell until at least a year after formation and a dividend of at least five per cent of paid-up capital.
3. The members' first right to buy in a limited company
This is the step most often skipped. Article 65 gives members of a limited company priority over outsiders. The seller must tell them, through the managing director, how many shares, the certificate number and the per-share amount asked or offered, backed by the would-be buyer. If thirty days pass and no member steps forward, or members offer less, the seller may sell to an outsider for more than the members offered. A sale to an outsider at the members' figure or below is void.
4. How the sale is done and recorded
In joint-stock and limited companies the sale takes place in a session attended by seller, buyer and a company representative named by the managing director. A contract records the details, the amount paid, the seller's receipt and the buyer's acceptance of the company contract, and it is entered in the share-transfer register with all three signatures, under article 66(1). A sale outside that session, or not entered in the register, is void. Listed shares move under the rules of the securities market, as article 66(2) says. Any transfer other than by sale is registered on the strength of a final court judgment, under article 68. In a partnership company, transferring a share to a non-partner needs the unanimous general assembly and a contract amendment; in a sole proprietorship it is done by amending the company statement, under article 69.
5. Is the buyer allowed the stake it wants?
For a foreign buyer, article 12(2), as amended by Law No. 17 of 2019, limits entry to joint-stock and limited companies and keeps Iraqi holdings at fifty-one per cent or more. Larger deals should also be checked against the competition statute; see Competition and anti-monopoly.
6. The workforce
A change of owners does not end employment contracts. Article 50 of the Labour Law makes the new employer answerable for the previous employer's obligations to workers on a merger, sale, assignment or lease, with the previous employer still jointly liable. Check unpaid wages, accumulated leave and potential end-of-service awards; more in Transfer of an undertaking and workers.
7. Social security and tax
Contributions more than one hundred and twenty days overdue attract a monthly penalty up to a ceiling, under article 17 of the Workers' Pension and Social Security Law, so ask for proof of payment. Article 20 of the same statute goes further: a company, workshop or factory cannot be sold, transferred or otherwise dealt with until a clearance certificate has been obtained from the Workers' Pension and Social Security Department, which makes that certificate a closing document, not just a check. Check the company's standing with the General Commission for Taxes as well, including whether it withholds and pays over its staff's income tax.
8. Records and real activity
A company that does not keep the required records, or files official information late, faces sums collected from it under articles 216 and 217. More seriously, a company that has not started trading within two years of formation, or has stopped for two consecutive years without lawful excuse, falls within the liquidation grounds of amended article 147. Buying a long-dormant company can mean buying a liquidation file.
9. What goes into the purchase contract
The findings then become clauses: the seller's warranties that the shares are free of pledge and attachment, about the headcount and workers' entitlements, and that there are no undisclosed claims or debts; an indemnity if any of that proves untrue; and, in a limited company, a condition that the deal closes only once the other members have waived their first right in writing.
The office follows these provisions from Baghdad, al-Yarmouk.
Legal basis and sources
- Companies Law No. 21 of 1997, articles 12, 13, 22, 64–69, 147, 216 and 217
- First Amendment to the Companies Law, Law No. 17 of 2019 (Iraqi Official Gazette, issue 4554 of 9/9/2019)
- Labour Law No. 37 of 2015, article 50 (Iraqi Official Gazette, issue 4386 of 9/11/2015)
- Workers' Pension and Social Security Law No. 18 of 2023, articles 17 and 20
Frequently asked questions
I sold my limited-company shares to an outsider without telling the other members. Is the sale valid?
Article 65 requires notice to the members through the managing director and a thirty-day window, a sale to an outsider at their figure or below is void, and a sale outside the session or left unregistered is void under article 66.
Can I buy attached shares if the seller agrees?
No. Article 64 bars transferring shares that are pledged, attached or frozen by court order.
If I buy the company, do I take on overdue wages?
Yes. The new employer is answerable for the previous employer's obligations to workers, and the previous employer remains jointly liable, under article 50 of the Labour Law.
How much of an Iraqi limited company can a foreign investor buy?
Up to forty-nine per cent, since Iraqi holdings must stay at fifty-one per cent or more under article 12(2).
Related topics and articles
- 01Amending the company contract, changing the managing director and transferring sharesAmending the company contract, changing the managing director and transferring shares under Companies Law No. 21 of 1997 as amended.
- 02The Competition and Anti-Monopoly Law and the Competition CouncilCompetition and Anti-Monopoly Law No. 14 of 2010 and the Council of Competition and Anti-Monopoly Affairs: prohibited practices and mergers.
- 03When a business is sold, merged or leased: who still owes the workers?What happens to workers’ contracts and accrued rights when a project in Iraq is sold, merged, leased or passed to heirs, and how liability is shared between the new owner and the previous one.
- 04Partner disputes, a request for liquidation, and a challenge to general-assembly decisionsPartner disputes: causes of liquidation, and a 5% objection to general-assembly decisions before the Registrar and then the Court of First Instance.
- 05Obligations that recur after a company is recordedFinal accounts, the audit, the general-assembly meeting and copies sent to the Registrar, distinct from post-incorporation steps and from branch duties.