Minority Shareholder Rights in Close Corporations: A Comparative Analysis with Iranian Law

Introduction Close corporations, typically owned by a few shareholders and not publicly traded, operate in an environment shaped by personal trust and informal expectations. In the U.S., courts have developed equitable doctrines to protect minority shareholders from exclusion and abuse by majority shareholders. In contrast, Iranian commercial law, while offering general shareholder protections, lacks a robust framework for minority safeguards in closely held corporations. This blog explores key doctrines protecting minority rights and offers a comparative analysis with Iranian corporate law.

1. Fiduciary Duties in Close Corporations in the U.S., courts often treat shareholder relationships in close corporations similarly to partnerships, requiring all shareholders especially those with control to act in good faith and with loyalty toward each other.

• Minority shareholders must not be unfairly excluded from management or deprived of economic benefits such as dividends.

Iranian comparison: In Iran, fiduciary duties between shareholders are not formally recognized in statutory law. The Commercial Code focuses primarily on the rights and obligations of the board of directors and general meetings. Shareholders are generally seen as passive investors, and there is no legal mechanism to hold majority shareholders accountable for abuse of power unless fraud or criminal conduct can be proven. This leaves minority shareholders vulnerable to exclusion or unfair treatment with limited legal recourse.

2. Protecting Reasonable Expectations Minority shareholders often expect continued participation in company management, employment, or fair economic returns. U.S. courts protect these expectations when their denial appears arbitrary or driven by personal animosity.

Iranian comparison: Iranian law does not recognize “reasonable expectations” as a legal standard. Shareholders’ rights are defined strictly by the articles of association and decisions of the general assembly. If a minority shareholder is excluded from employment or decision-making, they generally cannot claim breach of an implied expectation unless a contractual right is clearly stated.

3. Enforceability of Shareholder Agreements Privately negotiated agreements in close corporations such as those covering voting rights, buy-sell terms, or management roles are enforceable in U.S. courts when clearly drafted and equitable in nature.

Iranian comparison: Shareholder agreements in Iran are often viewed as secondary to the articles of association. Courts may not enforce provisions that conflict with statutory formalities or corporate governance structures. Furthermore, enforcement depends heavily on how explicitly such agreements are incorporated into the company’s governing documents. Informal side agreements often lack legal force.

4. Legal Remedies for Deadlock and Oppression When minority shareholders are locked out of the company or when corporate governance reaches an impasse, U.S. courts may intervene by ordering dissolution, mandating a buyout at fair value, or awarding damages.

Iranian comparison: The Iranian Commercial Code does not address shareholder oppression or governance deadlocks. Dissolution of companies typically requires insolvency, a court order based on specific statutory violations, or a supermajority vote. Minority shareholders have limited avenues to challenge exclusionary practices or force resolution of governance stalemates.

5. Disclosure Obligations in Share Transactions Transparency and full disclosure are key duties in U.S. close corporations, particularly during share buybacks or transfers involving insiders. Failure to disclose material information can result in liability.

Iranian comparison: Iranian law generally lacks disclosure obligations for private company transactions unless the entity is publicly listed under the Securities Market Act. In closely held firms, there is no formal requirement to inform shareholders about company prospects or pending transactions during a buyback, giving controlling shareholders significant informational advantages.

Conclusion The U.S. legal system offers a wide range of equitable protections for minority shareholders in close corporations, with courts willing to enforce fiduciary standards, uphold shareholder agreements, and recognize implied expectations. Iranian corporate law, while structured and codified, lacks the flexibility and judicial discretion necessary to protect minority interests in complex intra-corporate conflicts. Legislative reform in Iran introducing fiduciary duties, clarifying enforceability of shareholder agreements, and providing remedies for oppression would help ensure corporate justice and investor confidence.

Written by Amin Alemohammad | 1844IranLaw.com

Key Principles in U.S. Securities Law: A Comparative Overview with Iranian Regulations

Introduction U.S. securities law is shaped by a combination of statutory frameworks and regulatory enforcement that define the obligations of corporate insiders, board members, and large shareholders. This blog outlines core principles of the U.S. approach to insider trading, director indemnification, and investor protections followed by a comparative overview of Iranian securities and corporate law.

1. Short-Swing Profits and Shareholder Accountability

U.S. Law:

Under Section 16(b) of the Securities Exchange Act of 1934, corporate insiders — including officers, directors, and shareholders owning more than 10% of a company’s stock — must return any profits earned from buying and selling securities within a six-month period. This rule is intended to deter short-term market manipulation and protect ordinary investors.

Iranian Comparison:

While Iranian law prohibits insider trading and manipulative practices under the Securities Market Law, it lacks a direct equivalent to the U.S. short-swing profit rule. The Commercial Code and capital market regulations outline general duties for shareholders but do not specify precise trading timelines or thresholds.

2. Director Indemnification and Legal Costs

U.S. Law:

Many U.S. corporations include provisions in their bylaws or employment contracts that allow advance payment of legal expenses to directors and officers involved in corporate litigation. This indemnification may occur before any final judgment, promoting confidence in leadership roles.

Iranian Comparison:

In Iran, directors generally bear their own legal costs unless specifically authorized by the company’s shareholders or governing documents. Indemnity insurance is not yet a widespread practice, and no formal legal provision guarantees cost reimbursement for directors.

3. Insider Trading Responsibilities and Tippee Liability

U.S. Law:

The U.S. takes an expansive approach to insider trading enforcement. Liability extends beyond corporate insiders to include tippees — individuals who receive and act on confidential information improperly shared. Additionally, under the misappropriation theory, even those without an official company role may face charges if they use confidential information for personal gain.

Iranian Comparison:

Iranian law criminalizes insider trading in general terms but does not yet fully adopt U.S.-style doctrines like tippee liability or misappropriation theory. Enforcement mechanisms are limited, with few high-profile cases reaching courts or resulting in penalties.

4. Derivatives and Investor Protections

U.S. Law:

Investors in derivative instruments like call and put options are protected under anti-fraud provisions if misleading disclosures or omissions affect the value of the underlying securities. The SEC actively enforces violations that distort derivative markets or harm investor interests.

Iranian Comparison:

Iran’s financial markets are still developing infrastructure for derivatives. While regulatory attention is increasing, clear legal protections for derivatives traders remain underdeveloped, and practical enforcement remains minimal.

Conclusion: Bridging the Gap Between Legal Frameworks

The U.S. securities system offers a detailed and dynamic regulatory model, protecting investors through statutory rules, case law, and active enforcement. In contrast, Iranian securities law emphasizes ethical principles and basic investor safeguards but lacks the granular detail and consistency seen in U.S. practice.

As Iran continues to modernize its financial system, legal reform and stronger enforcement mechanisms could play a key role in attracting investment and boosting market credibility.

At Iranlaw, we help clients navigate complex cross-border legal frameworks, including securities compliance, corporate governance, and international investment laws. Whether you are an investor, board member, or corporate officer, our experienced legal team can provide tailored advice and regulatory insights.

📞 Contact us today for a consultation or more information about compliance with U.S. and Iranian securities regulations.

Written by Amin Alemohammad | 1844IranLaw.com

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.

Need Guidance on Iranian Corporate Law?

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Comparing Corporate Law Principles in Iran and the United States: Derivative Suits, Veil Piercing, and Director Duties

Corporate law systems around the world aim to balance the powers of directors and the rights of shareholders. In this post, we compare how key principles in U.S. corporate law—such as shareholder derivative suits, piercing the corporate veil, the business judgment rule, and corporate social responsibility (CSR) are addressed in Iranian law.

1. Shareholder Derivative Suits

U.S. Law: In the U.S., shareholders can file a derivative lawsuit on behalf of the corporation if the board fails to act against wrongdoing by insiders. These lawsuits require procedural steps, such as making a demand to the board or showing that such a demand would be futile.

Iranian Law: Iranian law recognizes similar rights, though in a less formalized way. Under Article 276 of the Amended Commercial Code, any interested party (including shareholders) may bring claims against directors. However, Iran lacks a codified mechanism for demand or futility analysis.

Conclusion: Derivative action exists in both systems, but the U.S. approach is far more structured.

2. Piercing the Corporate Veil

U.S. Law: Courts may "pierce the corporate veil" when shareholders misuse the company as an alter ego or engage in fraud. The doctrine prevents abuse of limited liability.

Iranian Law: While not expressly mentioned, Iranian legal scholars and court rulings acknowledge this concept in practice. If shareholders mix personal and company assets or commit fraud, courts may hold them personally liable.

Conclusion: The doctrine exists in Iranian law by implication but lacks a statutory framework.

3. Business Judgment Rule

U.S. Law: This rule protects directors from liability when acting in good faith, with reasonable care, and in the best interest of the company. Courts avoid second-guessing business decisions unless there’s fraud or conflict of interest.

Iranian Law: Iran does not have an explicit business judgment rule, but similar protections are inferred. Article 142 of the Commercial Code provides that directors are only liable if they breach duties or act in bad faith.

Conclusion: The principle exists in substance in Iran, but without a clearly articulated rule.

4. Corporate Social Responsibility (CSR)

U.S. Law: Cases like A.P. Smith v. Barlow permit donations to universities and public causes if they serve the company's long-term interest.

Iranian Law: CSR is not directly regulated in Iran’s Commercial Code. Still, some companies engage in charitable activities, especially listed firms with corporate governance standards.

Conclusion: CSR is emerging in Iran, but without formal legal support.

Final Thoughts

While Iranian corporate law shares many underlying principles with the U.S. system, it generally lacks the procedural sophistication and judicial doctrines that define American corporate jurisprudence. Concepts like derivative actions and veil piercing are acknowledged in Iran, but often depend on judge-made law and legal commentary rather than codified statutes.

As Iranian companies increasingly engage in international business, especially through U.S.-based litigation or partnerships, understanding these cross-system differences becomes crucial for legal professionals and stakeholders.

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If you're navigating cross-border corporate issues involving Iran and the U.S., our legal team at 1844IRANLAW.com is here to help. Contact us for specialized consultation on Iranian commercial law and compliance.

© 2025 – 1844IRANLAW. All rights reserved.

Partnership Law in the United States and Iran

Understanding how partnership law operates across jurisdictions is crucial for cross-border business collaborations. This article provides a clear, structured comparison between U.S. and Iranian partnership law across six key legal dimensions, offering guidance for entrepreneurs, legal professionals, and international clients.

  1. Establishing a Partnership: Formality vs. Function

• U.S. Law: Courts focus on the substance of the relationship—shared control, mutual profits/losses, and actual conduct—not just labels like "partner." Merely sharing profits or using the term "partner" doesn’t create a legal partnership (e.g., Fenwick, Martin).

• Iranian Law: According to Article 571 of the Civil Code, a partnership is the union of ownership in an undivided property. Article 576 acknowledges both contractual and involuntary (coercive) partnerships. Like U.S. law, Iranian courts consider intent and actual collaboration beyond written labels.

  2. Apparent Authority and Third-Party Liability

• U.S. Law: A partner can bind the firm to third parties if they act within the usual business scope, even if the other partner objects (National Biscuit v. Stroud). Apparent authority arises when a partner’s conduct reasonably leads outsiders to believe in their power.

• Iranian Law: Though the Civil Code prefers express representation, Article 664 allows actions within customary authority to bind the represented party. Commercial norms also permit reliance on apparent authority under Article 395 of the Commercial Code.

  3. Fiduciary Duties and Loyalty Between Partners

• U.S. Law: Partners owe each other high fiduciary standards—utmost loyalty, fair dealing, and full disclosure (Meinhard, Meehan). A partner must not exploit business opportunities for personal gain.

• Iranian Law: Article 581 states that partners are not liable for acts within their delegated scope unless they act negligently or abusively. This reflects fiduciary principles like loyalty and good faith.

 4. Dissolution of Partnerships and Legal Consequences

• U.S. Law: Partnerships can dissolve by agreement, term expiration, death, or judicial decree due to misconduct or irreparable conflict (Owen, Page, Collins).

• Iranian Law: Article 588 outlines similar grounds: completion of purpose, expiration, death, bankruptcy, or court order. Courts can order dissolution if cooperation becomes unfeasible.

 5. Ownership of Intellectual Property and Capital

• U.S. Law: IP created during the partnership belongs to the firm. A partner who wrongfully dissolves the firm may forfeit rights to those assets (Pav-Saver).

• Iranian Law: Unless otherwise stated in the contract, IP typically belongs to the partnership. A partner cannot claim unilateral ownership after dissolution unless explicitly agreed.

 6. Limited Partnerships and Management Involvement

• U.S. Law: A limited partner loses their liability shield if they manage or control the business (Holzman). Behavior determines exposure, not formal titles.

• Iranian Law: Although the Civil Code is silent, Articles 141–159 of the Commercial Code regulate mixed partnerships. A limited partner cannot intervene in management; if they do, they may be held liable.

 Conclusion

While both U.S. and Iranian systems emphasize shared goals and fiduciary principles, U.S. law focuses more on conduct and third-party protection, whereas Iranian law follows structured statutory definitions. Nonetheless, both systems uphold fairness, transparency, and trust as the foundation of successful partnerships.

If your business involves cross-border partnerships with Iranian entities or you need legal guidance on partnership structure, contact us at 1-844-IRAN-LAW or visit www.1844iranlaw.com for tailored legal support.

This article is provided by 1844IRANLAW – your trusted source for expert legal services in Iranian and comparative law.