A Turkish group’s internal approval policy may require headquarters consent before an Iraqi subsidiary signs a major purchase order. The legal question is whether that policy corresponds with the subsidiary’s registered management arrangements and the authority presented to suppliers. A breach of an internal budget rule and the validity of an external contract are separate issues.
The Iraqi Companies Law governs the subsidiary’s corporate organisation, while Civil Code agency principles inform the exercise of delegated powers. Corporate governance in Iraq therefore requires more than distributing a group approval chart to local employees.
Start with the subsidiary as a separate legal person
The Iraqi subsidiary has its own rights, obligations and authorised organs. Its parent company’s procurement department does not automatically become its legal representative. Headquarters may negotiate commercial terms, but the party making the final commitment and the source of its authority must be clear.
Review the subsidiary’s constitutional documents, shareholder or board decisions, manager appointment and recorded powers. Identify matters reserved to the competent corporate body, including any particular approvals required for borrowing, guarantees or disposal of significant assets.
The correct approving body depends on the company’s legal form and the proposed transaction. A group policy cannot substitute for a corporate decision that Iraqi law or the company’s documents require.
Transactions benefiting the parent or another affiliate should be assessed from the subsidiary’s own legal position, including authority, conflicts and the obligations the subsidiary would assume for another entity’s benefit.
Make delegated powers correspond with approval limits
Financial thresholds should identify the amount, currency and method of calculating related purchases. Otherwise, a manager may sign several orders that individually fall below the threshold but collectively commit the subsidiary to a substantial project.
The formal delegation should specify whether approval covers negotiation, signature, amendment and termination. Authority to place an order does not necessarily include authority to waive a claim or provide security for another group company.
Any restrictions intended to affect dealings with third parties require legal assessment of their form, registration or notification where relevant. Keeping a restriction only in an internal email may leave uncertainty over its external effect.
Define the role of headquarters procurement
Procurement documents should identify which company is purchasing and which representative signs for it. A group framework agreement may need a clear mechanism for orders by the Iraqi subsidiary, including the terms that become binding on each order.
The procedure should address:
- Approval of suppliers and purchase specifications.
- Authority to issue binding purchase orders.
- Changes to price, delivery and payment terms.
- Transactions with related parties.
- Acceptance of goods and settlement of claims.
- Emergency purchases and subsequent reporting.
The emergency process should identify who has authority at the time of commitment. Describing later reporting as approval does not necessarily cure a transaction entered into without the required power.
Assess unauthorised acts on their own facts
If a manager exceeds authority, determine what the counterparty was told, which documents it received and whether an authorised corporate body later adopted the transaction. The legal effect cannot be inferred solely from the manager’s breach of an employment instruction.
The subsidiary may also need to consider internal accountability. A manager’s contractual or statutory duties, conflicts of interest and the loss caused by the conduct should be examined separately from the supplier’s payment claim.
When managers change, revoke or replace outdated mandates through the necessary process. Update bank instructions, supplier contacts and access to company documents so that earlier authority is not left unexplained.
Etihad Law Firm acts as corporate legal counsel in Iraq for Turkish groups. Coordinating formal powers with procurement approvals allows headquarters to exercise commercial oversight while preserving a clear legal basis for commitments made by the Iraqi subsidiary and its authorised representatives.