This article considers how an Iraqi company can prepare itself to receive investment from institutional investors, such as private equity funds, development finance institutions, sovereign investors and strategic corporate investors. Institutional investors bring capital and expertise, but they also bring standards. They conduct detailed due diligence, require compliance with anti-corruption, sanctions and environmental and social policies, expect reliable financial reporting and negotiate governance rights. Companies that are unprepared may find the process long and costly, or may fail to secure investment altogether.
Preparation is not only about presenting the company favourably. It is about resolving the issues that institutional investors are likely to identify, so that diligence confirms the company’s strengths rather than uncovering problems. A company that has prepared well can negotiate from a stronger position and complete the transaction more quickly.
The Companies Law No. 21 of 1997, as amended, governs the company’s form, capital, governance and share transfers. The Iraqi Civil Code No. 40 of 1951 governs contracts. The Labour Law No. 37 of 2015 and the Workers Retirement and Social Security Law No. 18 of 2023 govern employment. The Income Tax Law No. 113 of 1982, as amended, governs tax compliance. The Investment Law No. 13 of 2006, as amended, and sector legislation govern licences. The Anti-Money Laundering and Counter-Terrorism Financing Law No. 39 of 2015 and international anti-corruption standards applied by investors shape compliance expectations.
Understanding investor expectations
Different institutional investors have different priorities, but most will focus on:
- Clean ownership and corporate records. Clear evidence of who owns the company and that its corporate acts were properly authorised.
- Reliable financial information. Audited accounts prepared to recognised standards, with management accounts that reconcile to them.
- Compliance. Tax, labour, licensing and regulatory compliance, and policies on anti-corruption, sanctions and anti-money laundering.
- Governance. A board capable of oversight, separation of ownership and management and controls over related-party transactions.
- Environmental and social standards. Particularly for development finance institutions, compliance with environmental, health, safety and social standards.
Understanding these expectations allows the company to prioritise preparation.
Organising corporate records
The company should assemble a complete set of corporate records: the registry file, articles of association and amendments, shareholder register, board and general assembly minutes, capital changes and registrations. Discrepancies between the registry and internal records should be resolved. Unregistered capital changes, missing resolutions and informal share transfers among family members are common issues that should be regularised. Corporate advice in Iraq can review and regularise corporate records.
Strengthening financial reporting
Investors will rely on audited financial statements and expect them to be prepared according to recognised accounting standards and audited by a reputable firm. Companies with qualified audit opinions, inconsistent accounting practices or unrecorded liabilities should address these before seeking investment. Management accounts should be regular and reconcilable to audited figures. Forecasts should be based on documented assumptions.
Reviewing compliance
A compliance review should cover tax filings and payments, social security contributions, employment contracts and practices, licences and permits, environmental permits and sector-specific requirements. Gaps should be remedied or, where remediation will take time, documented with a plan. Tax advisory services in Iraq can review tax compliance and identify exposures.
Adopting compliance policies
Institutional investors will expect the company to have, or adopt, policies on anti-corruption, conflicts of interest, related-party transactions, sanctions screening and anti-money laundering where relevant. These policies should be appropriate to the company’s size and operations and should be implemented, not just written. Training, reporting channels and monitoring demonstrate implementation.
Addressing key contracts and assets
Material contracts should be reviewed for change of control provisions, exclusivity, termination rights and compliance with law. Key assets should be owned by the company, not by shareholders personally. Licences should be held by the company. Where assets or licences are held by shareholders or affiliates, they should be transferred or documented through leases or licences before investment. Commercial contract advice in Iraq can review material contracts.
Preparing governance arrangements
The company should consider what governance changes an investor is likely to require and whether existing shareholders are willing to accept them. These typically include investor board representation, reserved matters, information rights and related-party controls. Founders should understand these expectations in advance, so that negotiations are not derailed by surprise.
Preparing a data room and disclosure
Once preparation is complete, the company should organise a data room with documents arranged logically, an index and responses to anticipated questions. Known issues should be disclosed proactively with an explanation of how they are being addressed. Proactive disclosure builds trust and reduces the risk of price renegotiation late in the process.
Considering vendor due diligence
For larger transactions, the company may commission vendor due diligence reports from legal, financial and tax advisers. These reports identify issues before investors do and allow the company to address them or present them on its own terms.
Understanding environmental, social and governance requirements
Development finance institutions and many international funds apply environmental and social standards to their investments. These standards may cover labour conditions, health and safety, environmental impact, community relations and governance. Investors may require an environmental and social due diligence review and an action plan to close identified gaps.
Iraqi companies should anticipate these requirements by reviewing their practices in areas such as:
- Labour. Working hours, wages, contracts, social security registration and grievance mechanisms consistent with the Labour Law No. 37 of 2015.
- Health and safety. Safe working conditions, training and incident reporting.
- Environment. Environmental permits, waste management and emissions.
- Supply chain. Practices of key suppliers, particularly regarding labour standards.
An action plan agreed with the investor will usually form part of the investment documents, with progress reported periodically. Companies that have already addressed major gaps can negotiate a shorter and less burdensome action plan.
Negotiating from a position of preparedness
Preparation affects not only diligence but negotiation. An investor that finds few issues has less reason to seek price reductions, specific indemnities or extensive conditions. A company that has resolved its issues in advance can resist demands for broad warranties and protections, because the investor has less uncertainty to protect against.
Preparation also helps the company understand its own priorities. Founders who have considered the governance changes an investor will seek can decide in advance which rights they can accept and which they cannot, and can negotiate accordingly. Advisers who know the company’s position well can present it confidently and respond to investor concerns quickly. The time and cost of preparation are usually recovered many times over in a smoother and more favourable transaction.
Illustrative example. An Iraqi pharmaceutical distributor seeks investment from a development finance institution. Its preparation review finds that two warehouses are owned personally by the founder, that several employees lack written contracts, that social security contributions have been calculated on understated salaries and that the company has no anti-corruption policy. Over six months, the company transfers the warehouses into its name, issues written contracts, regularises contributions and adopts and trains staff on an anti-corruption policy. When the investor conducts diligence, it finds a well-organised company with few open issues, and the transaction proceeds quickly.
Conclusion & how Etihad Law Firm can help
Preparing an Iraqi company for institutional investment involves organising records, strengthening financial reporting, reviewing and improving compliance, aligning assets and contracts with the company and preparing for governance changes. Companies that prepare well negotiate from a stronger position and complete transactions faster.
Etihad Law Firm helps Iraqi companies prepare for institutional investment, from readiness reviews and regularisation of records through to data room preparation and negotiation. We help clients present themselves as credible investment opportunities.