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Vol. 40, Nº 73 (2022), 955-964
IEPDP-Facultad de Ciencias Jurídicas y Políticas - LUZ
Recibido el 14/03/2022 Aceptado el12/05/2022
Sole companies: analysis and feasibility
in Iran and the United States of America
DOI: https://doi.org/10.46398/cuestpol.4073.55
Bagher Narimani *
Alireza Lot **
Mozaar Bashokooh ***
Abstract
The purpose of the article was to analyze the legislation
governing sole proprietorships in Iran. Although the new draft
commercial law and the existing laws in European and American
companies indicate the possibility of forming a sole proprietorship,
it is not possible in Iran to form a sole proprietorship under the
existing regulations, especially the existing commercial law.
Methodologically in the essay, based on a comparative study on
American commercial law and through analytical issues, we point
out that, from the analytical (not legal) point of view, the formation
of such corporations not only does not face any strong obstacles, but also,
it can be benecial in various ways. We then present the benets of the
Single Corporation and nally discuss the administration and liquidation
of these Corporations. Everything allows us to conclude that, the idea of
forming a sole corporation is unusual in Iran, but it is also accepted by the
state-owned companies. Therefore, the Iranian legislator can develop this
idea and apply it to private business enterprises. However, it is noted that
permission to run such companies should be considered while ensuring the
rights of third parties.
Keywords: sole proprietorship; state-owned enterprise; legal entity;
nominal partner; comparative analysis.
* PhD student, Department of Law, Ardabil Branch, Islamic Azad University, Ardabil, Iran. ORCID ID:
https://orcid.org/0000-0003-0394-0519
** Assistant professor (Corresponding author), Department of Law, Ardabil Branch, Islamic Azad
University, Ardabil, Iran. ORCID ID: https://orcid.org/0000-0002-0401-3920.
*** Assistanr professor, Department of Law, Ardabil branch, Islamic Azad University, Ardabil, Iran.
ORCID ID: https://orcid.org/0000-0003-0152-7480
956
Bagher Narimani, Alireza Lot y Mozaar Bashokooh
Sole companies: analysis and feasibility in Iran and the United States of America
Empresas únicas: análisis y viabilidad en Irán y
Estados Unidos de América
Resumen
El objetivo del artículo fue analizar la legislación que regula a las
empresas únicas en Irán. Si bien el nuevo proyecto de ley comercial y
las leyes vigentes en las sociedades europeas y americanas indican la
posibilidad de formar una corporación única, no es posible en Irán constituir
una rma unipersonal bajo las regulaciones existentes, especialmente
la ley comercial vigente. Metodológicamente en el ensayo, a partir de un
estudio comparativo sobre el derecho comercial estadounidense y a través
de cuestiones analíticas, señalamos que, desde el punto de vista analítico
(no legal), la formación de tales corporaciones no solo no enfrenta ningún
obstáculo fuerte, sino que también, puede ser benecioso de varias maneras.
Entonces presentamos los benecios de la Corporación Única y nalmente
discutimos la administración y liquidación de estas Corporaciones. Todo
permite concluir que, la idea de formar una corporación única es inusual
en Irán, pero también es aceptada por las empresas estatales. Por lo tanto,
el legislador iraní puede desarrollar esta idea y aplicarla a las empresas
comerciales privadas. Sin embargo, se señala que el permiso para dirigir
tales empresas debe considerarse asegurando los derechos de terceros.
Palabras clave: corporación única; empresa estatal; entidad jurídica;
socio nominal; análisis comparativo.
Introduction
Although forming sole corporations have been legalized in many
European and American countries, and its eects have been manifested, the
necessity of discussing the sole corporations or any other legal institutions
in Iran is subject to society. From the rst text in Iranian law on the sole
corporation or company, until its entry into the legislative eld has been
needed for more than seventy years, although some have argued for various
reasons that such a requirement is in our current legal-economic system.
But opponents or not, paying attention to lawmakers for obvious
reasons has made some legal texts and theories, except a few texts, express
the historical evolution of the formation of the sole corporation in the
world and the existence of this company by considering the state-owned
companies in Iran and so the justication for establishing such a company
is not unavailable for researchers.
Therefore, in this article, despite dening a sole corporation, we try to
present the ambiguities regarding the establishment of this type of company
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Vol. 40 Nº 73 (2022): 955-964
(Sole Corporation) in Iranian law and management of the company and its
system of responsibility, and the advantages and disadvantages of forming
a sole company. The following pages are an attempt to summarize the
reasons for the formation of a sole corporation in the US. (Abbas Niazi and
Iam Kamarkhani and Mohsen Jalilian, Investigation of the sole corporation
in Iranian Law by a Comparative View, Quarterly Journal of Economic Law,
2016: 2)
1. Possibility of forming a sole corporation in the legal and
analytical views
Businessmen, who act as individuals, have unlimited liabilities versus
third parties, and all property, including commercial and private property,
is security for their debt to their creditors. These people cannot divide their
property in terms of the unity of property and only partially guarantee
their debt and keep any other part of it free from any interference. In
such a situation, a community would easily be willing to commerce with
businessmen due to his strong backing. Businessmen oset the risk of their
activities from their assets while establishing a sole corporation allows
individuals to operate without incurring all risks.
By establishing such companies, individuals will be able to trade
their assets and impose their inexperience risks on others. In such cases,
pessimism and mistrust are prevalent and to evade responsibility is
provided. It is clear that the adverse eects of this method rstly aect the
economy and commerce, as it increases the risk coecient of economic
activities for individuals who trade in a sole corporation. (Mahmoudi, paper
on the possibility of forming Sole Corporation, 2003).
By according the above-mentioned, it may be argued that various
provisions of the Commercial Code, such as Articles 190, 183, 162, 141, 116,
94 of 1311, require the cooperation and participation of at least two persons
to form a limited, relative and partnership limited liability Company.
Articles 107 and 3 of the amending Bill of Trade Act 1347 also required the
existence of at least three and ve partners respectively for the formation
of a Private and Public Joint Stock Company (Private and public Held Co).
On the other hand, asset dissolution and limiting liability to the amount
of capital of a company are not limited to the sole corporation. Individuals
with the establishment of a public corporation, private equity, and a limited
liability company also pursue this goal. Thinkers of today’s societies not only
disagree with such companies but also strongly support them because of
their undeniable role in the society’s economy. Therefore, asset dissolution
and limited liability cannot be a reason to oppose the sole corporation.
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Bagher Narimani, Alireza Lot y Mozaar Bashokooh
Sole companies: analysis and feasibility in Iran and the United States of America
In addition, with the establishment of such companies, the risk
coecient of economic activities for individuals who trade with a sole
corporation will not increase signicantly. At rst, because the phrase (Sole
Corporation) after the name of the company indicates company status
and level of responsibility of its sole corporation, and persons knowingly
know the status of the company enter into a transaction with it, secondly,
the credibility of such companies may be more than companies with more
partners. (Mahmoudi, 2003).
It is clear that the non-prescription of such companies causes individuals
to enter the company to meet the requirement of personal partnerships
multiplicity, his contribution constitutes a small percentage of the
company’s capital (e.g., one or two or ve percent). This person may not
have had a role in raising capital, and a percentage of the rm’s capital has
been formally allocated to him, in which case both formulations will cause
divisions in the future and should be avoided (Skini, 2011).
2. Registering a company in US
Depending on the type of business in the US, the type of authorities and
amount of taxes will vary. Company registration in the US can be done in
4 types and concepts, two of which relate to Sole Corporation as follows.
(Earnings Opportunities, 1997).
2.1. Limited Liability Company
A Limited Liability Company in the United States is a Complex company
with a commercial nature that allows a person or entity to conduct its
business without risking its capital. This is possible by limiting liabilities
and denitions of the Articles of Association.
Limited Liability Company is the most appropriate option in the eld
of international trade in terms of taxation and trade options for non-
US applicants who want to continue their business in the United States.
Many investors, who want to register a rm in the region, are exempt
from taxation; they can achieve this goal by registering a limited liability
company (LLC).
The most important benets of registering a limited liability company in
the United States are as follows:
- LCC companies are established easier for non-residents without
excessive bureaucracy. In some states, there is no need for initial
capital, and it isn’t income tax.
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3. Monopoly Company (exclusive)
A sole corporation is an entity that a person establishes a business as
a sole rm without any cooperation with another person or company, any
debts and other responsibilities are undertaken by the principal.
3.1 Advantages and Disadvantages of Registering a Limited
Liability Company in the United States and its accordance with
Iranian Law
Registering a limited liability company in the US has advantages
compared to joint stock companies, which helps applicants for having the
best option to achieve their goals. One of the most important advantages
of registering a limited liability company in the US is that there is no need
for company executives, and then shareholders and directors of a limited
liability company or LLC, can hold their board meetings in other countries
as well. (Akhavy, a (No Full Name) (1940), non-partner corporation, Justice
Ministry of collection law).
Another advantage of registering a limited liability company in the
United States is that there is no need for board members to be shareholders,
and depending on the circumstances in each state for registration, only
one to three persons can register a limited liability company in the United
States.
Not paying income tax on corporations in some states is another
advantage of registering a corporation in the United States. (Charlesworth
& Georey Morse, Law Company, 15th Ed, Sweet & Maxwell, 1997).
Some US states have provided advantages to applicants for registration
of a limited liability company, one of the most important of which is the
lack of necessity for the initial capital to register a limited liability company
in the United States. In this case, applicants for a US company registration
can enter the state without the required capital and apply for US company
registration.
Ansari, vali-o-Alah, (2013), Administrative contrasts law, Hoghoughdan
publication, second edition (In Persian).
In Iran, a civil company’s transformation into a trading company has
two advantages:
• To create more capital by raising the capital of each partner.
• Security for Partners due to their capital separation from personal
property.
Here, a human’s creative mind raises a new question: If two or more
individuals can separate their capital brought to the company from personal
960
Bagher Narimani, Alireza Lot y Mozaar Bashokooh
Sole companies: analysis and feasibility in Iran and the United States of America
property, why should not a single person have this ability? The design of
this question is the basis of a new invention that we call sole corporation
neglect.
A sole corporation allows individuals to transfer unilaterally part of their
property to the assumed entity of the sole corporation and to separate their
property. Therefore, using this security pattern that exists for business rm
partners also creates a single person to accomplish it by resorting to the
company. In contrast, the company’s registration also has its disadvantages.
The most important of these disadvantages are as follows:
• In a sole corporation, one person is solely responsible for all debts
and liabilities.
• The person who registers a sole corporation must pay taxes for
employees and employer.
4. History of forming a sole corporation in Iran
Despite of above-mentioned cases, the idea to form a sole corporation
is not unusual in our law, and even the legislator has approved the
establishment and operation of such corporations. Article 4 of the Act of
General Accounting approved on 10/6/1366 permits to establish companies
with a single member (government). Also, the Act on Registration of
Branches or Agencies of Foreign Companies approved on 21/8/1376, and
its Implementing Regulations approved on 1/1/1378 which absolutely
permits foreign companies (both single member companies and companies
with multiple partners) to operate in Iran. We describe it.
4.1. Article 4 of the Iranian General Accounting Act
Article 4 of the Iranian General Accounting Act approved on 10/6/1366
makes it possible to establish a single-member business (government). It
provides: “A state-owned corporation is a specic entity that is established
by law as a corporation or has been nationalized or conscated by law or
a competent court and is recognized as a state corporation and more than
fty percent of its capital is owed to the government.
Any business rm created by the investment of state-owned companies
is considered a state-owned company as long as more than fty percent of
its shares are owned by state-owned companies. According to the above
article, many state-owned companies have been set up, with 100% of
their capital being nationalized or conscated and owned by the state and
engaged in business as well as trading companies with only one person
(government) as a member. State-owned businesses are therefore public-
law entities formed with a single member.
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4.2. The Law on Registration of Branches or Agencies of Foreign
Companies approved on 21/8/1376 and its Implementing
Regulations approved on 11/1/1378.
The single article of the Act provides: “Foreign companies which are
recognized as lawful companies in their country, while reciprocal action by
the country, and shall to do in such matters as may be determined by the
Government of the Islamic Republic of Iran within the framework of laws
and regulations. Article 1 of the Implementing Regulations of the Act also
provides foreign companies which are recognized as lawful companies in
their country, while reciprocal action in their respective countries, can work
in Iran in the following areas.
According to the above-mentioned cases, because single-member
companies may be legally recognized in the countries where are registered,
they may operate in Iran under this law and its implementing regulations.
The formation of a single-member company is accepted in most countries
such as England, France, Italy, and Germany. Let us now consider the rules
of American law in this case:
According to the Companies Act 1916, the minimum number of partners
which is required for the formation of a private limited company is two, but
amendments to the commercial law of 1996 also provided the formation of
a single member limited liability company.
5. The possibility of forming dierent companies
in single-member companies
By explaining various kinds of companies in commercial law, we answer
the question of what kind of companies can be analytically formed as single-
member companies.
6. Limited liability Company
According to Article 94 of commercial law, the formation of a limited
liability company with a single member is not legally possible; on the other
hand, by considering how to operate the limited liability company, it is
almost like a privately owned joint-stock company in the United Kingdom
and a limited liability company in the United States that is possible with
one partner. (Mahmoudi, 2009: 132).
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Bagher Narimani, Alireza Lot y Mozaar Bashokooh
Sole companies: analysis and feasibility in Iran and the United States of America
6.1. Cooperative Partnership Co. and Proportional Liability
Partnership Company
Analytically, the formation of Cooperative Partnership Co. and
Proportional Liability Partnership Company with a single member does
not face any obstacles. In case of insuciency of assets of Cooperative
Partnership Co. and proportional Liability Partnership Company to pay all
the Company’s debts, the single member would be responsible to pay all the
Company’s debts.
Therefore, these two companies are coming together and nding the
same eect. Because in Cooperative Partnership Co. a single member
will be responsible to pay all debts due to the Cooperative partnership
responsibility, and in the Proportional Liability Partnership Company, a
single member will be responsible to pay all debts due to having its 100%
shareholding. (Isaa Tafreshi, Analytical Discussion of Business Law, Vol. 1,
2009: 138)
6.2. Managing a sole corporation
If a single partner manages the corporate unit, he will also be its owner
alongside all liability, of course, this case is not prohibited according to the
new business law bill. There are two ways to manage a sole corporation: 1.
the sole proprietor is known as the company’s shareholder, he/she elects a
director or directors to manage the company, in this case, the shareholder
of the company is the same person and the company’s aairs are merely
delegated to another. 2. The shareholder himself/herself will be the
managing director, who will then act as a legal person.
And for this case, the employer-employee relationship is not a debate,
and responsibility for all activities will be on the company itself, of course,
discussions on the guarantee is an exception. (Abbas Niazi and Ayyaam
Kamarkhani and Mohsen Jalilian, Investigation of the sole corporation in
Iranian Law with a Comparative View, Quarterly Journal of Economic Law,
2016: 9)
6.3. End of Company’s Life in a sole corporation
The end of a company’s life has two distinct aspects or stages that can
be interpreted as credit and practical aspects. The end-of-life credit aspect
is the nature of the company and due to it; the legal personality of the
company is lost. This aspect or end of a company’s life is referred to as
dissolution. The practical aspect of end-of-life is the determination of the
company’s assets in which the company’s assets are converted into cash, its
demands are received and debts and liabilities are fullled. After the stage,
if the surplus exists, it is divided between the partners according to their
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CUESTIONES POLÍTICAS
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rights and interests in law and the articles of association. In this case of the
company’s end of life, they use a legal word as liquidation.
The dissolution of a sole corporation may also be voluntary or forced.
The only dierence between these companies and the companies with more
partners is that their voluntary dissolution is based on the will of the only
sole member.
Conclusion
1. The idea to form a sole corporation is not only unusual in our law,
but also accepted by state-owned companies. Therefore, the Iranian
legislator can elaborate on this idea and apply it to private business
rms. However, it is noted that permission to run such companies
should be considered by securing third parties’ rights.
2. In Iran, forming a sole corporation is possible only in the public and
private limited liability companies, since only in these companies,
the company’s assets separated from the partners’ assets, and in
other companies, the partner guarantees the payment of company’s
debt after liquidation. So only in such companies, a partner can have
the necessary risk.
3. A sole corporation due to its unique nature, diers from other
companies in its formation, management, and dissolution. So that its
formation and dissolution (except for bankruptcy) are accomplished
with a will, and unlike other companies, the necessary decisions are
made by a single member without observing certain formalities.
Bibliographic References
ABBAS, Niazi; AYYAM, Kamarkhani; MOHSEN, Jalilian. 2016. “Investigation
of sole corporation in Iranian Law with a Comparative View” In: Quarterly
Journal of Economic Law. Vol. 12, No. 24, pp. 112-123.
AKHAVY, A. 1940. “Non-partner corporation” In: Justice Ministry of collection
law. No. 149, pp. 63-65.
ANSARI, Vali-o-Alah. 2013. Administrative contrasts law. Hoghoughdan
publication, second edition. Teheran, Iran.
ENGLISH, John. 1997. Earning Opportunities, Translated by Khalil Razavi and
Vahideh Etemad, Pendar Publishing. Teheran, Iran.
964
Bagher Narimani, Alireza Lot y Mozaar Bashokooh
Sole companies: analysis and feasibility in Iran and the United States of America
GEOFFREY, Morse. 1997. Company Law. 15th Ed, Sweet & Maxwell. New
York, USA.
HANDLEY, Peter; CLEVENGER, Jim; VAUGHAN, John; BIRTWISTLE, Tim;
NEILL, Tony; Wall, Sue. 1996. Business Law. Blackwell Publishers Ltd.
Chicago. USA.
ISAA TAFRESHI, Mohammad. 1999. An Analysis of commercial Law. In:
Tarbiat Modarres University Press. First Edition. Teheran, Iran.
MAHMOUDI, Asghar. 2003. Paper on the Possibility of Forming sole
corporation. Teheran, Iran.
NORBENT, Horn; HEIN, Kots; HANS G, Leser. 1982. German private and
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www.luz.edu.ve
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Esta revista fue editada en formato digital y publicada
en julio de 2022, por el Fondo Editorial Serbiluz,
Universidad del Zulia. Maracaibo-Venezuela
Vol.40 Nº 73
