Branch or Company; which one to choose?

October 10, 2017

Foreign companies, who enter the Iranian market and set up an establishment in Iran, may choose between different alternatives dependent on their intended activities: They may form a company in the mainland with 100% foreign shareholding or a branch or representative office in Iran.

Commercial Companies

The Commercial Code of Iran contains four important topics. One of which is related to commercial companies. The Commercial Code of Iran recognizes seven types of commercial companies, which could be associated with the following types of business: Joint Stock Company or Corporation, Limited Liability Company, General Partnership, Limited Partnership, Joint Stock Partnership, Proportional Liability Partnership and Production and Consumption Cooperative Society. From the above companies, three types of companies are of significant importance and are more common in Iran, which are Private Joint Stock Company, Public Joint Stock Company, and Limited Liability Company.

Foreign Companies’ Branch / Representative Office

One of the simplest and most common means for commercial transactions and investment could be an establishment of a branch or representative office of a foreign company in Iran. According to Iranian Law the branch office of a foreign company is the subordinate local unit of the principal company, which carries out the objectives, and functions of the principal company in that location. The activity of the branch in the location must be conducted under the name and responsibility of the principal company. The representative of the foreign company is the natural person or legal entity who is in charge according to the representation (agency) contract, with carrying out a certain part of the object and functions of the principal company. The representative of the foreign company shall be responsible with respect to the activities carried out in the location under the agency granted by the principal company. The Branch will be a foreign company and act as a branch under Mother Company and may operate in the following areas of activities:

• Post sales service for the goods or services of the mother company.
• Carrying out the contracts terms between Iranians and mother Company.
• Plan future investment of the mother company in Iran.
• Collaborate with Iranian experts for business activities in neighbor countries.
• Participate in non-oil exports market in Iran.
• Regulating duties in the areas of clearance from government organizations and services in the fields of transportations, insurance, banking and marketing, etc.

However, Most of the foreign company favor Private Joint Stock Company as their model of startup of their business in Iran.