Share capital is one of the foundational features of any joint stock company. The Companies Law No. 21 of 1997 (as amended) establishes minimum capital levels, rules for the structure of capital into shares, and procedures for the payment and management of capital. For Iraqi JSCs, the capital regime is more demanding than for limited liability companies, reflecting both the JSC’s typically larger scale and the broader investor base that the form is designed to accommodate.
Minimum Capital
Joint stock companies face minimum capital requirements that vary by company type and sector:
- Public joint stock companies require a higher minimum capital than private JSCs.
- Specific sectors (banking, insurance, certain financial activities) impose elevated minimum capital requirements beyond the general framework, set by the relevant sector regulator.
- Investment Law projects may have effective minimum capital expectations tied to the project’s scale.
- Public offering and listing on the Iraq Stock Exchange engage additional capital expectations.
- The current minimum capital should be verified against the latest position rather than relied on from historical reference.
Capital below the applicable minimum is a regulatory deficit that must be addressed through capital increase or restructuring.
Authorised, Subscribed, and Paid-Up Capital
Capital structure operates on three concepts:
- Authorised capital, the maximum capital the company may issue under its articles, providing headroom for future increases without amendment of the articles.
- Subscribed capital, the capital that shareholders have committed to provide, whether already paid or not.
- Paid-up capital, the capital that shareholders have actually provided to the company.
- Unpaid portions of subscribed capital remain a continuing obligation of the subscribing shareholders, callable by the company on the timetable established at subscription.
The relationship between these elements must be managed deliberately, with appropriate documentation of subscription and payment.
Share Structure
Capital is divided into shares of equal nominal value. The articles specify the number of shares, their nominal value, and any classes (where the company has different classes of shares with different rights). Most Iraqi JSCs operate with a single class of ordinary shares, though preference shares and other classes are recognised where the articles provide for them. Share classes should be designed at incorporation rather than added later, because the introduction of new classes affects existing shareholders and requires formal procedures.
Subscription and Payment
At incorporation, founders subscribe to shares as part of the founding documents. A portion of the subscribed capital must be paid in at incorporation, with the balance callable later. Subsequent capital increases (covered in our dedicated article) follow their own subscription and payment procedures. Capital must be deposited in a bank account in the company’s name, with bank confirmation supporting the registration of capital with the Companies Registrar at the Ministry of Trade.
Capital in Kind
Capital can be contributed in kind through transfer of assets to the company rather than cash. Capital contributions in kind require valuation supporting the agreed value, with the valuation methodology following the requirements of the Companies Law. Common contributions in kind include real estate, equipment, intellectual property, and shares in other companies. The valuation should be defensible against later challenge, because contested valuations can produce disputes about share allocations and corporate value.
Capital Maintenance
The Companies Law imposes capital maintenance principles protecting the company’s stated capital from inappropriate erosion. Key elements include:
- Restrictions on distributions to shareholders below specific thresholds.
- Reserve requirements building up financial cushions over time.
- Procedures for capital reductions, requiring formal approval and creditor protection.
- Specific provisions where losses erode capital below thresholds.
- Restrictions on the company acquiring its own shares except in defined circumstances.
Compliance with capital maintenance is a continuing obligation that affects dividend policy and reorganisation transactions.
How We Can Help
Etihad Law Firm advises joint stock companies on capital matters in Iraq, initial capital structuring, capital contributions in kind and their valuation, capital increases and reductions, capital maintenance compliance, and the resolution of capital-related issues. We work alongside accounting firms and valuation specialists where required.