A sole proprietorship or a limited company?
A person who wishes to work within an Iraqi company with a single founder, or to compare a sole proprietorship with a limited company even where the limited company has several members within the limit in article 6, reads the two descriptions in Companies Law No. 21 of 1997, as amended. The frame is on company registration. A limited company with a single owner is on its page. All of the types are on the forms page. The comparison is confined to the differences the text draws between the two forms.
Liability, and who may be an owner
Article 6, fourth paragraph, makes a sole proprietorship a company formed of one natural person who owns the single share and is under unlimited personal liability for all of the company's obligations. Article 6, second paragraph, makes a limited company — mixed or private — one that may not have more than twenty-five persons, who bear liability for its debts to the nominal value of the shares they have taken. The exception in articles 4, second paragraph, and 8, second paragraph, point 1, allows a limited company to be owned by one person, natural or legal, and allows a sole proprietorship only to one natural person.
The practical consequences are read from this difference: a creditor of a sole proprietorship may have resort to the owner's own property, within the unlimited liability the text states, while a creditor of a limited company has resort to the company in the limits of its estate, and to a shareholder to the extent of the nominal value of that shareholder's shares, unless another ground of liability mentioned in the Law arises, such as the limit in article 4, third paragraph, or liability for acts of management where that applies.
Both forms acquire legal personality from the date the certificate of incorporation is issued, under article 22, unlike a simple company. The single founder prepares a statement that stands in place of the contract, under article 14.
Transfer, management, and meetings
In a sole proprietorship, ownership of the share is transferred by amending the company's statement, under article 69, second paragraph. If the transfer is to more than one person, or is of part of the share, it is effected only by transforming the company into another type provided for by the Law. Transformation is on its page. In a limited company, a transfer of shares is made under the limits articles 64 to 68 set, and is read on the amendment page.
The owner of a sole proprietorship, or of a single-member limited company, stands in place of the general assembly, except for the provisions that concern meetings, under article 101. A limited company with several members holds its general assembly at least once every six months, under article 86, and on the meeting page. The managing director of a limited company is on that page.
Entry in the commercial register at a chamber of commerce is a duty of the company within thirty days of its formation, under article 34 of the Commercial Law, and is a path distinct from registration of the company with the Registrar, on the commercial-register page.
Tax and social security after the certificate is issued
The comparison sets out the differences the text draws in liability, ownership, transfer and management. After the certificate is issued, tax is read from the Income Tax Law and from the official instructions, and social security, if workers are engaged, from its own law.
The Law Office of Ali Barakat follows this reading of the comparison from Baghdad, al-Yarmouk.
Legal basis and sources
Frequently asked questions
Does the liability of the owner of a sole proprietorship stop at that owner's share?
No. Article 6, fourth paragraph, makes it unlimited personal liability for all of the company's obligations. That is its clearest difference from a limited company.
May a legal person form a sole proprietorship?
Articles 6, fourth paragraph, and 8, second paragraph, point 1, confine a sole proprietorship to one natural person. A legal person may own a single-member limited company, under the same exception, not a sole proprietorship.
How is a sole proprietorship transferred to more than one person?
Article 69, second paragraph, makes a transfer of the whole share to more than one person, or a transfer of part of it, possible only by transforming the company into another type provided for by the Law, not by a mere amendment of the statement.
Is the owner of a sole proprietorship liable only to the extent of the capital contribution made?
No. The liability of the owner of a sole proprietorship is not confined to the contribution that owner made, unlike a member of a limited company, who is liable to the extent of the shares that member holds. That difference is read from the description of each type in the Companies Law, in articles 4 to 8.
Related topics and articles
- 01A limited company with a single ownerA single-member limited company is allowed by article 4, second paragraph, and differs from a sole proprietorship, whose liability is unlimited.
- 02Company forms under the Iraqi Companies LawCompany types under Companies Law No. 21 of 1997 as amended: joint-stock, limited, partnership, simple, sole proprietorship and holding.
- 03Recording an individual merchant in the commercial register and at the chamber of commerceAn individual merchant is recorded in the commercial register at a chamber of commerce, distinct from company registration with the Registrar.
- 04Obligations 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.
- 05The address of a company or branch, a lease and a title deedThe company's address in its contract, before the Registrar and in the commercial register; a lease or deed may evidence it. Not a real-estate page.