Understanding LLC Governance – A Comparative Look at U.S. and Iranian Law
As global business expands, understanding how Limited Liability Companies (LLCs) are structured and governed in different jurisdictions becomes essential. This article explores how the United States and Iran treat core principles of LLC law, including the role of internal agreements, member duties, liability protections, and dissolution procedures. While both legal systems recognize the limited liability company as a distinct form, their approaches differ in flexibility, enforcement, and member obligations.
1. Flexibility in Member Agreements
United States: Members in the U.S. enjoy broad contractual freedom. They can tailor their internal agreement to define voting rights, management structure, duties, and dispute resolution mechanisms, including binding arbitration or designating out-of-state courts.
Iran: Iranian law does not require or extensively recognize internal operating agreements beyond the standard articles of incorporation. Most governance matters are controlled by default statutory provisions under the Commercial Code.
Key Insight: U.S. LLCs offer greater flexibility in structuring internal affairs, while Iranian LLCs follow a more code-based, uniform model.
2. Duties of Loyalty and Good Faith
United States: Fiduciary duties among members or managers can be waived, limited, or customized through the operating agreement. However, a baseline obligation of good faith is implied, though it cannot override clear contractual language.
Iran: While Iranian law implies good faith in all contractual obligations, fiduciary duties specific to LLC governance are not well-developed. Directors and managers may face general civil liability, but explicit loyalty duties between members are less defined.
Key Insight: The U.S. allows contractually tailoring duties; Iran applies general civil obligations without detailed fiduciary standards.
3. Protection from Personal Liability
United States: LLCs shield members from personal liability. However, courts may disregard this protection when the LLC form is abused—such as commingling assets, undercapitalization, or avoiding legal obligations. This principle applies even without fraud.
Iran: Although not formally codified, Iranian courts can also set aside limited liability protections in cases of fraud, misuse of the legal entity, or mixing personal and company assets.
Key Insight: Both systems acknowledge the principle of "piercing the veil," but U.S. courts have developed clearer case law standards for applying it.
4. Responsibilities During Dissolution
United States: Upon dissolution, members must follow statutory winding-up procedures, including notifying creditors and ensuring debts are paid before distributing assets. Failure to do so may expose members to personal liability.
Iran: Iranian law also mandates that company debts be paid before any distribution of remaining assets. However, enforcement tends to be less formalized, and violations may not always result in judicial accountability.
Key Insight: While both legal systems agree on the principle, the U.S. imposes stricter procedural compliance and consequences for missteps.
Final Thought
Understanding how LLCs operate in different jurisdictions is crucial for investors, partners, and legal practitioners involved in cross-border ventures. The United States offers a highly flexible, contract-based approach to LLC governance. Iran, while recognizing the structure of LLCs, adheres to more rigid statutory norms and underdeveloped judicial interpretations.
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