This article examines the risks of acquiring an Iraqi business whose main commercial relationships depend on its founder or another individual. The company may have recorded substantial revenue, but the buyer needs to establish whether the underlying contracts, access and goodwill will remain available when that person leaves. The issue affects valuation, the transition period and the protections required in the acquisition agreement.
The Iraqi Civil Code No. 40 of 1951 governs relevant contractual and agency questions, while the Companies Law No. 21 of 1997, as amended, governs corporate authority and ownership arrangements. The Competition and Antitrust Law No. 14 of 2010 may affect restrictive arrangements between businesses. Where the founder will remain as an employee, the Labour Law No. 37 of 2015 also requires consideration. The analysis must be adapted to the contractual governing law and the jurisdiction in which the business operates.
Identifying who holds the commercial relationship
The buyer should identify the legal holder and practical basis of each relationship that supports material revenue:
- Match the customer to the contracting party. Compare signed contracts with invoices and bank receipts to establish whether the rights belong to the target, the founder personally or another group entity. Revenue recorded by the target is not conclusive evidence of contractual ownership.
- Review the terms that affect continuity. Renewals, side letters and correspondence may alter duration, termination rights or performance expectations. A nominal long-term agreement may still be vulnerable to short-notice termination.
- Identify dependence on an individual. Determine whether the arrangement requires a particular qualification, appointment or continuing involvement. Record which dependencies arise from binding terms and which reflect the customer’s commercial preference.
Commercial contract advice in Iraq should assess these conditions before projected revenue is treated as secure. The review can then inform customer consents, founder assistance and the price mechanism.
Distinguishing legal rights from expected cooperation
A relationship may continue because a customer values the founder’s involvement, even where the contract does not require it. That commercial dependence should be identified separately from a legal consent requirement. The buyer can then decide whether retention, introductions or a transitional role is justified.
Customer confirmation may be useful, but the proposed communication should be coordinated with the seller and any confidentiality obligations. A general expression of support is weaker evidence than a signed consent or amendment addressing the actual ownership change. Neither should be described as a guaranteed renewal unless the customer has undertaken that obligation.
Designing a founder transition that can be performed
A transition agreement should identify the founder’s tasks, availability and authority. Introductions, assistance with outstanding tenders and transfer of operational knowledge should be described in practical terms. The founder should not retain uncontrolled authority to bind the company simply because continuing involvement is commercially desirable.
If the founder remains employed, the arrangement should comply with applicable employment rules. If services are supplied through another entity, the contract and actual working relationship should be examined. Employment advice in Iraq can assist in distinguishing the appropriate structure and reviewing duties concerning confidentiality and customer information.
Linking deferred consideration to observable outcomes
Deferred consideration can be linked to the survival or performance of specified relationships, but the measurement should be clear. The agreement should define the relevant customers, revenue recognition, collection requirements and treatment of returns or disputes. A vague condition that relationships remain satisfactory invites disagreement.
The buyer’s post-closing decisions also matter. Repricing products, changing service levels or redirecting work may affect the founder’s ability to meet an earn-out target. The parties should agree the operating freedoms retained by the buyer and any protections needed to prevent manipulation of the calculation.
Reviewing restrictive covenants carefully
The buyer may seek restrictions on competing activity or solicitation of customers and staff. Their scope, duration and geographic application should be assessed under the governing law and the circumstances. A restriction suitable for a seller of a business may require different analysis from a restriction in an employment contract.
The drafting should identify the legitimate business interest being protected and avoid assuming that an expansive international form will be enforced unchanged in Iraq. Confidentiality and misuse of company records should be addressed independently, so that protection does not depend entirely on the validity of a non-compete provision.
Investigating the basis of unusual relationship payments
Payments associated with customer or public-sector relationships should be examined before the buyer commits to continue them:
- Identify the recipient and service. Obtain the agreement, invoice and evidence of work for intermediary fees or commissions. The description should allow the buyer to understand what was provided and who authorised payment.
- Investigate unexplained features. Personal recipients, unsupported charges or claims of unofficial influence need a proportionate factual and legal review. Record unresolved questions and avoid treating management assurances as proof that the arrangement is acceptable.
- Assess whether the relationship can continue lawfully. Determine which legitimate services are needed and how they can be documented. The financial model should not assume continued improper conduct as an ordinary customer retention cost.
Illustrative example. A founder attributes a major customer account to a consultant who receives a recurring commission. The buyer should establish whether the consultant provides documented services, whether the customer relationship belongs to the target and whether payment depends on continuing founder involvement. If the evidence does not support the arrangement, the buyer should reassess the forecast and proposed transition obligations. A seller’s promise that the account will remain profitable is an inadequate substitute for understanding the underlying service, contract and payment. Any revised arrangement should have a lawful purpose and clear authority before it becomes part of the acquired business.
Conclusion & how Etihad Law Firm can help
The value of a relationship-led business depends on the rights and cooperation that survive the founder’s departure. Diligence and transition arrangements should establish how that continuity will be achieved and what happens if it is not.
Etihad Law Firm assists with business acquisitions in Iraq, including contract reviews, founder transitions and negotiated risk allocation. We help investors connect the legal position of key relationships with the price and practical arrangements required for a sustainable handover.