This article examines how pre-investment due diligence in Iraq should distinguish a problem that can be corrected from one that changes the investment decision. A missing filing, an expired operational permission and disputed ownership may all appear in a legal review, but they affect the proposed transaction in different ways. The investor needs to understand what must be resolved, who can resolve it and whether the business can continue operating while the work is done.
The legal review commonly draws on the Companies Law No. 21 of 1997, as amended; the Iraqi Civil Code No. 40 of 1951; the Income Tax Law No. 113 of 1982, as amended; the Labour Law No. 37 of 2015; and the Workers Retirement and Social Security Law No. 18 of 2023. The Real Estate Registration Law No. 43 of 1971 is relevant where premises or land are material. Sector legislation, investment permissions and regional rules must be added according to the target’s activities and locations.
Starting with the investment assumptions
The diligence scope should be built around the assumptions supporting the investment price:
- Identify the source of value. Where projected revenue depends on a customer contract, examine its duration, termination rights and transfer restrictions. Where value depends on a site or licence, obtain evidence of the underlying right and its conditions.
- Confirm the transaction perimeter. A share purchase normally leaves the target responsible for existing obligations. An asset purchase requires attention to title, transferability and liabilities that may follow a business transfer under applicable law.
- Prioritise findings by their effect on the investment. A defect affecting the principal operating permission deserves a different response from a missing copy of a routine document. The review should explain the consequences for operations, cost and timing.
Corporate transaction advice in Iraq should establish that scope before findings are classified. The buyer can then direct further investigation towards assumptions that would materially change its decision.
Distinguishing missing evidence from an underlying defect
An absent document does not always prove non-compliance, but it prevents the buyer from treating compliance as established. The team should identify whether the document never existed, has been lost, is held by an adviser or is inconsistent with an official record. Each explanation points to a different follow-up action.
For example, a missing copy of a valid licence may be remedied by obtaining the official record. A licence issued to a founder personally may require a more substantial solution if the company is using it for its own business. The report should explain the distinction and preserve the unanswered question until reliable evidence is available.
Assessing whether a remedy is achievable
A proposed remedy should be tested against the authority needed to implement it, the likely sequence of steps and the consequences of refusal. Management’s willingness to make an application is useful, but it does not establish that the authority can or will approve it. Where the remedy depends on another shareholder, lender or landlord, that person’s cooperation should be confirmed.
The analysis should also identify what happens before the remedy is completed. A filing defect may permit continued operations, while a missing permission for the principal activity could expose the business to interruption. The investor should receive a realistic explanation of the operating position rather than a single estimated completion date unsupported by the legal route.
Separating measurable exposure from loss of the business case
Some risks can be estimated and allocated commercially. Unpaid contributions, a disputed invoice or a documented remediation cost may support a price adjustment, retention or specific indemnity. Other risks affect whether the investor will obtain the asset or activity it intended to acquire. An indemnity may provide a damages claim, but it cannot itself create ownership or an unavailable operating permission.
Where a material tax position remains unresolved, Iraqi tax advice should identify the periods, evidence and possible assessment routes involved. A scenario range should distinguish an amount already assessed from an estimate of potential exposure. Presenting both as a single confirmed liability can distort negotiations.
Converting findings into transaction terms
Every significant finding should lead to a proposed action. A condition precedent is suitable where completion should depend on resolution. A specific indemnity may address an identified historical exposure. A post-closing undertaking can be appropriate for work that can lawfully and practically be completed after ownership changes.
The seller’s ability to perform matters as much as the wording. A promise to reimburse losses has limited commercial value if the seller will distribute the proceeds and retain no accessible assets. Security, retained consideration and the dispute mechanism should therefore be considered alongside the underlying risk allocation.
Reporting uncertainty to the decision makers
The report should give decision makers a clear basis for proceeding, renegotiating or waiting:
- Separate verified findings from unanswered requests. State which documents were reviewed, what remains unavailable and whether the conclusion depends on an assumption. An unresolved request should remain visible until reliable evidence answers it.
- Explain the proposed response to each material issue. Identify the remedy, the person whose cooperation is needed and the evidence of successful resolution. State whether the buyer is being asked to accept a residual risk.
- Update material findings before signing and completion. Revisit expiring permissions, threatened claims and developments affecting key contracts. A focused update should address changed circumstances while retaining work that remains reliable.
Illustrative example. Diligence reveals both an unavailable copy of a current licence and uncertainty about ownership of the target’s principal site. Obtaining an official licence record may answer the first issue. The site question requires a separate title review and may affect whether the investment can proceed at all. A report that describes both as documentation gaps would conceal that difference. The buyer should receive a distinct action and completion requirement for each, together with an explanation of how an unresolved site issue would affect the proposed operations and transaction price.
Conclusion & how Etihad Law Firm can help
Useful due diligence explains the consequence of a defect and the available response. It enables an investor to distinguish a manageable remediation exercise from a risk that undermines ownership, operations or the expected return.
Etihad Law Firm supports investors with legal due diligence, transaction structuring and negotiated protections. Where a finding involves an existing claim, our dispute resolution services in Iraq can assist in assessing the claim’s procedural position and its effect on the proposed investment.