Legal status of startups under Iranian law

Legal status of startups under Iranian law

The Legal status of startups are one of the new legal issues that have arisen these days due to the emergence of businesses on the Internet. Common legal problems of startups exist in all stages, including the launching of a startup, their growth and development, and especially in the investment stage. Each of these startups seeks to achieve specific and different goals.

Issues such as company registration, patenting a new product, arranging contracts between startup founders, issuing shares, etc., are among the legal issues that can be problematic for the owners of these startups. Therefore, being mindful of the rights of startups can reduce legal problems and pave the way for you.

This article will discuss everything you need to know about the registration of startups in Iran, applicable laws and regulations governing the startups under Iranian law, common legal issues, and the essential contracts of start-ups.

 

Definition of Startups

There are different definitions for startups, however; a simple explanation for describing startups can be stated as follows:

“One or more entrepreneurs or start-ups with little capital, relying on the motivation and ability of their founders to come up with the idea of ​​offering a new service or unique product, to solve an old and unanswered problem or need.”

Companies usually apply creative solutions to meet the market’s needs to look for the best method to provide goods or services. These companies need to strengthen the legal aspects, such as their contracts, in order to be on the path of rapid growth and achieve their goals optimally.

 

Startups under Iranian law

Suppose you are launching a startup in Iran. You need to follow the laws in this area as prescribed; unless, in addition to filtering the system, non-compliance with the rules may result in a court order and a ban on startups.  The rules governing start-up businesses cannot be counted due to the many laws in Iran and the diversity of startups; however, the following laws can be mentioned as the most important and widely applicable regulations under Iran’s legal system. Regarding the special law on start-ups in Iran, we can only refer to “the regulation for the protection of start-up companies” (approved by the Cabinet in 2019), which is included in   11 Articles.

 

1- Law on Protection of Computer Software Copyright

In many cases, startup tools are new software that is used as a means of providing services or goods. This software’s creator needs legal protection to protect their rights. This law identifies rights and requirements for developers of new software. Article 13 of this law guarantees the implementation of the violation of the mentioned rights.

 

2- Law on Patents, Industrial Designs, and Trademarks

On many occasions, start-ups began to mass-produce new products. Articles 1 and 2 of mentioned law define inventions, and Article 15 describes the rights arising from a patent. Article 30 of the same law explains a trademark.

It is worth mentioning the Law on the Protection of the Rights of Software Manufacturers and the Law on Patents, Industrial Designs, and Trademarks shall apply to cases that have been registered in accordance with their provisions; Therefore, patents, trademarks, etc., are inevitable for startups.

 

3- Law on Electronic Commerce

This law sets out the rules governing exchanges that take place through electronic intermediaries by use of new communication systems. Considering that startups mainly offer their services and goods in the electronic environment, it is necessary for the founders to be acquainted with and pay attention to the E-commerce law.

 

4- Law on Cybercrime

This law is essential for startups in two different aspects. On the one hand, start-ups have protected information that is confidential to the business or its users. The Cybercrime Law criminalizes and guarantees any attack on this data. On the other hand, startups often develop their business by producing content in cyberspace; consequently, it is necessary for startups to act with the knowledge of the provisions of the mentioned law.

 

5- The regulation for the protection of start-up companies

The Council of Ministers consists of the Minister of Communications and Information Technology, the Minister of Science, Research and Technology, the Minister of Economic Affairs and Finance, the Minister of Labor Cooperation and Social Welfare, and the Vice President for Science and Technology adopted regulations to protect start-up companies.

In this plan, tax and insurance exemptions for start-up businesses are considered if they meet the conditions mentioned in the regulations.

 

Start-up contracts

Startup contracts are a set of contracts that members of a startup prepare with each other or third parties. Sample types of startup contracts are set depending on the kind of cooperation. In the following, we will introduce different types of startup contracts.

 

1. Confidentiality Agreement or Non-Disclosure Agreement (NDA)

Information Confidentiality Agreement or Non-Disclosure Agreement is one of the most binding agreements at the beginning of any startup. The founder has to communicate with individuals or organizations regarding his startup idea or corporate with different groups in this field. Under this agreement, individuals are required to keep information confidential and non-disclosed for a specified period. This sample contract is divided into two types, unilateral and bilateral.

 

2. A Non-Compete Agreement (NCA) 

Your startup idea may take a long time to grow and develop. The NCA or Non-Compete Agreement assures you that the people who work with your team will not be able to use your idea or corporate with a competitor within a certain period.

 

3. Co-Founder Agreement (CFA)

The Co-Founder agreement or the Founders’ Memorandum is a contract between the founders to pre-incorporate a startup. This contract includes confidentiality, responsibilities, and liabilities of each partner, dispute resolution, damages, and termination of the contract. They also assign IP rights among co-founders.

 

Start-up investment contracts

For establishing a business, investing and financing is requisite. Thus, investing in a startup is a must. In a startup investment contract, the investor provides the required costs; in return, he becomes the owner of a portion of the company’s stock. The following are examples of investment contracts in startups:

 

1. Venture capital (VC)

Investors and entrepreneurs choose small companies with a high probability of growth and development, which initially need financial resources. They meet the financial needs of this institution or company and, in turn, will be among the shareholders.

These investors set VC Contract or Risk Capital with the startup. The risk factor of this investment is high since startups may not grow and develop as expected.

 

2. Shareholders Agreement (SHA)

It is a contract that is concluded with the shareholder. It describes the full details of the shareholder, the shareholder’s commitment, rights, and how to manage the company. This contract has a significate role in controlling and managing the relations between the shareholders.

 

3. Vesting Contract

It is a contract under which a shareholder or investor can own or transfer shares under certain conditions. The value of a startup’s stock increases over time. If, after a period of time, one of the shareholders is unwilling to cooperate, the Vesting Agreement allows him to sell or transfer his shares.

 

4. Employee Stock Ownership Plan (ESOP)

In addition to the founders and shareholders, the role of employees is also vital in the growth of a startup.  A skilled employee can have a significant impact on the growth and development of a startup. Undoubtedly, having such an employee is impossible for a start-up that cannot afford to pay, or the loss of a skilled and specialized employee will not be pleasant for large start-ups.

Employee Stock Ownership (ESOP contract example) solves this problem. Under this agreement, the startup initially pays less to the employee and, as the startup grows, gives him a percentage of the stock. This contract motivates the employees to continue their duties.

 

5. Startup Accelerator

An accelerator is a company or institution that helps a startup launch and grow a business by providing initial services or capital. The accelerator supports ambitious startups in the early stages of operation over several months. Also, Accelerators provide investors with the opportunity to invest in potential startups.

Under the accelerator contract, the accelerator receives a percentage of the startup’s profits or shares in exchange for providing support or financial services to the startup entrepreneur. According to Article 10 of the Civil Code, this type of contract is considered a private contract and is valid and explicit provided that the law is observed.

 

Register a Startup in Iran

If you plan to register a startup, you need to become conversant with the company registration laws based on Iran’s commercial law.

Under the commercial law of Iran, different types of companies have been introduced, of which four types (limited liability company, private joint-stock company, cooperative, and public joint-stock company) are more famous and widely used in Iran than other companies.

Our advice at Iran Best Lawyer is that prior to registering your start-up company, make sure to search and inquire carefully about these four types of companies and, if necessary, consult reputable law firms.

However, by reviewing the articles of association of each company and examining the similarities and differences between them, you can decide which of the following types of companies, depending on your activity and type of business, are the best option for registering your startup.  The most appropriate template for startups is a private limited company and a limited liability company

• Limited Liability companies
• Private joint-stock companies
• Public joint-stock companies
• Partnerships companies
• Relative companies
• Joint-stock companies
• Non-joint stock companies
• Cooperative companies

 

high reputation among customers

Bear in mind that registering a company and preparing an article of the association will give you a high reputation among customers, investors, and other individuals and legal entities while officially and legally announcing the startup’s activities to everyone. In this regard, many individuals and companies will be willing to invest in your startup, and their trust will increase your business dealings. This process is not different for foreign nationals who intend to register a startup in Iran.

 

Start-up company registration process

1. Designation of partners
2. Registration in the company registration system
3. Choose the right title for the company
4. Specify the duration and subject of the company’s activity
5. Specify a specific address to register the company
6. Determining the initial capital
7. Determining the company’s share and the right to sign
8. Specify the position of individuals
9. Import shares of persons
10. Identify relationships between people
11. Registration of company branches
12. Select an annual/financial newspaper
13. Minutes of the meeting or the governing body of the founders, the board of directors corresponding to the type of legal entity
14. Submitting Declaration Letter
15. Completion of the articles of association
16. Completion of the company letter
17. Completion of documents

 

Necessary licenses for the activity of an online startup in Iran

1. Electronic symbol

According to the rules of startups, the first license required for the activities of startups is a symbol of electronic (enamad.ir) trust issued by the Ministry of Industry, Mine, and Trade so that customers or startups addressed can operate on the E-commerce platform with peace of mind.

Startup contact can click on this icon to access the legal information of your startup franchisee as well as the duration of the operation.

 

2. Digital Media License

The second authorization is the Digital Media License (samandehi.ir), issued by the Ministry of Culture and Islamic Guidance. All Internet-based startups shall apply for this license.

 

3. Economic activity code

For economic activity in Iran, start-ups and businesses shall receive a tax tracking code and an economic code from the country’s tax organization in order to become members of unions related to their business and have banking activities under Iranian law. All steps of pre-registration and receiving the economic code are done through the economic code registration system at (tax.gov.ir)

 

4. National Union of Virtual Businesses

Online start-ups for virtual business and online sales in Iran shall become members of the virtual business union (ecunion.ir). To be a member of this union, a business or startup will need to have an Electronic symbol logo and tax-economic code.

 

5. Online banking portal or POS Bank

Startups and businesses need a bank portal or POS card reader in order to sell their products and services, which will require a tax economic code and Electronic symbol logo to receive these two items.

 

6. Computer Guild System License

The sixth license every computer business requires to obtain under the startup rules in Iran is to take a license from the Computer Guild system (IranNSR).

Subsequent to the company’s registration, all startups shall refer to the computer system organization of their province within six months after the date of its registration and apply for this license.

 

7. Obtain special licenses

Some businesses, such as food and medicine, require special permits from the relevant authorities, and activity in these areas is subject to obtaining special licenses. Online pharmacies, for example, shall be licensed by the Ministry of Health.

 

8. Intellectual property

The intellectual assets of any startup are one of the main indicators of its activity. Hence, if you are in the process of registering your startup in Iran and have not yet made the idea public, it is best to protect your idea according to the startup rule use IP protection solutions.

To do this, it is better to consult a lawyer who is an expert in the field of IP and can determine how to protect your ideas legally. This is a kind of insurance against your startup idea, which will prevent you from directly imitating or stealing it.

The intellectual property system is one of the subsets of the country’s property and document registration organization. It has made it possible for its users to register patent declarations, industrial designs, signs, and geographical indications and to search for each of these items electronically and offline. You can reach website at: (ipm.ssaa.ir)

 

Preparation of articles of association for startups

As we mentioned in the previous sections, although startups are not companies, they shall inevitably be considered a company subsidiary. For this reason, statutes set up for startups are similar to laws set up for companies under Iranian law.

The articles of association of a startup shall include the registration number, date, name, and the type of company. The subject of the company’s activity should also be included in it. Moreover, the address of the startup’s headquarters has to be mentioned in the articles of association along with the postal code of the location.

If there are several startup founders, the articles of association shall be signed by all of them in order to have legal validity.

 

Advantages and disadvantages of registering an independent legal entity for businesses

Undoubtedly, registering a company has problems, such as drafting an article of association, carrying out the administrative registration process, selecting members such as inspectors, etc., but its advantages outweigh its disadvantages.

Company registration leads to the financial independence of the startup, legal residence, and receiving special facilities and prevents possible disputes over the level of participation and local jurisdiction of judicial authorities.

In the case of registration of an independent legal entity under titles other than a limited liability company, the liability of the founders is limited to their shares.

Also, according to the by-laws for the support of start-up companies (approved by the Cabinet in 2009), in the case of registration of a legal entity, start-up companies can be exempted from paying taxes and insurance in the first three years of establishment by having the conditions mentioned in this by-law.

 

Legal problems of startups

Among the issues that threaten a startup business and cause legal problems for them, we can refer to the followings:

• Illegality of activity
• Activity in the field of goods or services that are prohibited by law and Sharia
• Transactions that are made for illegitimate and illegal purposes.
• Any activity that is considered a crime.
• Failure to obtain a license
• Failure to respect the rights of people associated with startups
• Legal problems that arise in connection with the partner.
• Ambiguities regarding the rights of investors and shareholders
• Unfair contracts
• Tax problems
• Insurance and social security problems of startups
• Violation of the intellectual rights of startups
• Responsibility for user actions

 

 

In this article, we tried to discuss the critical issues regarding the legal problems of startups, contacts, registration of startups in Iran, and provide comprehensive guidelines.

Our lawyers and experts at Iran Best Lawyer are always ready to help you find the best practical solution for your business in Iran.