Liability of the Board of Directors of Joint-Stock Companies under Iranian and Iraqi Law: A Study of the Legal Nature and Foundations of Liability

Abstract

The liability of the board of directors in joint-stock companies constitutes one of the most significant issues in corporate law, as this corporate body is responsible for the practical administration and direction of the company, and its decisions may directly affect the rights and interests of shareholders, creditors, and third parties. In Iranian and Iraqi law, although the structure of the joint-stock company is founded upon the independent legal personality of the company and the separation of ownership from management, the foundations and legal consequences of directors’ liability are not identical in the two legal systems. Under Iranian law, the Legal Bill Amending Certain Parts of the Commercial Code, particularly Articles 142 and 143, establishes the principal framework governing directors’ liability and grounds such liability in violations of statutory provisions, the articles of association, resolutions of the general meeting, and fault in the performance of managerial duties. Under Iraqi law, the liability of the board of directors may similarly be analyzed on the basis of the Companies Law and the general rules of civil liability, although Iraqi law is comparatively less explicit in its statutory provisions and provides a less precise differentiation among the various legal grounds of liability. Employing a descriptive-analytical and comparative approach, this study examines the legal nature of the relationship between the board of directors, the company, and its shareholders and demonstrates that the organ theory is more compatible with the legal structure of the joint-stock company than the agency theory. The study further concludes that, in both legal systems, directors’ liability may be explained on the basis of fault, breach of statutory duties, and the necessity of protecting the interests of the company and injured parties.