Sale of Shares of Iraqi Companies Obtaining Investment Licenses

Article (10/Second/Z) of the amended Investment Law No. (13) of 2006 permits the developer to transfer ownership of part of the investment project to a secondary developer after achieving 40% completion of the project. The secondary developer is not allowed to transfer ownership of the investment project except after the full completion of the project.

Article (10/Third/C) of the Investment Law allows the investor to transfer ownership of the investment project, wholly or partially, during the license period to any other investor after obtaining approval from the licensing authority, provided that 40% of the project has been completed. The new investor replaces the previous one in all rights and obligations incurred under the law and the agreement concluded with them.

Companies Law:

Articles (64-70) of the Companies Law No. (21) of 1997 permit the transfer of shares of companies registered with the Registrar of Companies according to the provisions and details mentioned therein.

Circular of the National Investment Commission:

The National Investment Commission issued Circular No. (1205) on 16/4/2018, instructing the Registrar of Companies not to approve the sale of shares of Iraqi companies that have obtained an investment license and the change of their authorized director except after obtaining approval from the National Investment Commission exclusively. This applies to all investment projects, with a requirement that the project completion rate reaches 40% before relinquishing the license or selling the investment project.

The Commission also issued regulations for amending investment licenses, which include in paragraph (Second/Relinquishment/8) adherence to the aforementioned circular regarding approval for the sale of shares of Iraqi companies holding investment licenses. Thus, the above circular became part of the regulations for relinquishment or sale of the project. Therefore, it is not permissible to sell the shares of a company holding an investment license unless the project has reached a 40% completion rate. The Registrar of Companies is to be notified by the National Investment Commission to proceed with the transfer of the company's shares, thereby placing a clear restriction on the sale of shares or the transfer of ownership of the investment project.

Circulars of the General Secretariat of the Council of Ministers:

The General Secretariat of the Council of Ministers, in its letter No. 9862 dated 10/4/2021, stated that it is the right of the Registrar of Companies to require the company holding an investment license to provide the approval of the relevant investment commission for the sale of shareholders' shares. This is based on Article (128) of the Companies Law, which stipulates: "The registrar has the right to request any data, clarifications, or documents from the company in order to perform his duties under the law." The followed procedure also enhances the provision of information to shareholders regarding decisions that affect their investments and companies, based on Article (1/Fourth) of the aforementioned law.

Introducing a Financier or Executor into the Investment License:

Paragraph (Fifth) of the regulations for amending investment licenses allows the possibility of including a financier and/or executor (one or more) in the investment license at any stage of the project after obtaining approval from the owning entity. They are not considered partners in the project or the investment license, and this is not deemed a transfer of the project unless the completion rate reaches 40%, taking into account the provisions related to transferring the project.

Substitution of the Lender or Financier in the Investment License:

Article (28/Third) of the Investment Law allows that, in the event the project stops due to a dispute between the investor and others, the Commission may take legal measures to liquidate the project while notifying the project owner and depositing the liquidation amount in a bank after collecting the state's rights or any other rights established by a judicial ruling. Additionally, others who are lenders or financiers have the right, before starting liquidation procedures, to request the licensing commission to replace the investor. The acceptance or rejection of the request is at the discretion of the licensing commission.

Partnership Contract:

Typically, when an investor wishes to enter as a partner, executor, or financier in an investment project, a partnership contract certified by the competent notary public is concluded. The partnership contract is then submitted to the relevant investment commission to amend the investment license, provided that the process of transferring the project, wholly or partially, is completed after achieving a 40% completion rate. This ensures the investor's rights under the partnership or financing contract before being included as a partner, financier, or executor in the investment license.

Conclusion:

Based on the experience our company possesses, we assist and guide investors wishing to enter into a partnership in a project to guarantee their rights through the drafting of partnership contracts and completing the assignment process according to the applicable regulations.

We recommend canceling or amending the circular issued by the National Investment Commission to allow the transfer of ownership of shares of Iraqi companies holding investment licenses without requiring a certain percentage of project completion. This is because the Investment Law and the Companies Law did not explicitly or implicitly stipulate such a restriction, especially since the decision to change the company's authorized director is supposed to be noted by the Registrar of Companies as soon as they are notified of the company's decision, being an employee unless they own shares in the company.

Addressing the case of transferring shares of foreign companies holding investment licenses in Iraq, as the law did not address it.

We offer our expertise at Osama Taameh Legal Services and Consultations to assist investors in investment partnerships to guarantee their rights through drafting partnership contracts and completing the assignment according to regulations. Obtain your consultation now with a law firm in Iraq!