This article examines how UAE groups with Iraqi subsidiaries can separate shareholder oversight from the subsidiary’s day-to-day authority to sign contracts. A UAE parent may approve budgets and strategy while expecting regional executives in Dubai to negotiate the subsidiary’s deals. The arrangement becomes legally uncertain when the person giving instructions, the person signing and the entity taking on liability are all different.
The principal framework is the Companies Law No. 21 of 1997, which governs the subsidiary’s corporate bodies, its manager and the general assembly; the Civil Code No. 40 of 1951, which sets the rules on agency, apparent authority and ratification; and the Notary Law No. 33 of 1998, under which powers of attorney are usually executed. The subsidiary’s legal form, its articles of association and its registered management position at the Companies Registration Directorate are central to the analysis.
The subsidiary as a separate legal person
An Iraqi subsidiary has its own rights and obligations. The parent’s ownership does not make it a party to the subsidiary’s contracts, nor does it give every parent employee authority to bind the subsidiary. Contract documents should name the Iraqi entity clearly, with its registration details, even where negotiations take place in Dubai.
A review of corporate governance in Iraq should establish the powers of the general assembly, any board and the registered manager. A group delegation policy may regulate internal approvals, but its effect must be assessed against the Companies Law and the company’s own articles. The parent should distinguish decisions it can take as shareholder, such as approving accounts or appointing the manager, from acts that must be performed by the subsidiary through its authorised representatives.
Reserved decisions and management duties
The group may require its approval before the subsidiary borrows, grants security or signs contracts above a set value. These controls are most effective when recorded in the articles or in a formal shareholder resolution, and reflected in the manager’s delegation of authority. The documents should also explain what happens if approval is delayed or refused, particularly where a contract deadline is approaching.
The Iraqi manager still needs to understand the duties attached to the role. Under the Companies Law, managers can be liable to the company, shareholders and third parties for breaches of law or the articles, and an instruction from the parent does not necessarily protect a manager who carries out an unlawful act. Approval arrangements should include a route for legal review and escalation when regional instructions conflict with the subsidiary’s legal position.
Negotiation and signing authority
A regional sales director may negotiate price and scope without having authority to sign the final agreement. The parties should agree when negotiations become binding and who may issue an offer, accept a purchase order or approve a variation. Email signatures, standard terms and letters of intent should reflect those limits consistently, because the Civil Code’s rules on apparent authority may bind the company where a counterparty reasonably relied on someone appearing to act for it.
A review of Iraqi commercial contracts should also consider guarantees or comfort letters given by the parent. A parent signature may be intended only to confirm approval, yet unclear wording can create a separate obligation. The capacity in which each signatory acts should be stated, supported by the relevant resolution or power of attorney.
Bank mandates and payment authority
Banking is often where authority problems surface first. Iraqi banks act on the specimen signatures and mandate documents they hold, not on group policy. A requirement for regional approval of payments should be reflected in the bank mandate or online banking permissions, otherwise a locally authorised signatory can still make payments that breach the group’s controls.
Evidence of approval and changes in personnel
The approval record should link the authorised decision to the contract actually signed. Approval of an earlier draft may not cover a later increase in liability or a change in the contracting entity, and significant variations should go through the same approval route rather than being treated as routine.
When managers or regional executives change, powers of attorney, bank mandates, registry records and counterparty notifications may all need updating. Powers of attorney issued before an Iraqi notary should be formally revoked before the notary, and new appointments recorded with the Companies Registration Directorate. Obsolete authority documents left in circulation can lead to disputes over which commitments the company accepted, and records should show who handles notices, renewals and claims after the original negotiator leaves.
Parent guarantees and comfort letters
Counterparties dealing with an Iraqi subsidiary, particularly banks and government entities, often ask for parent support. A parent guarantee creates a direct obligation of the UAE company and should be approved under the parent’s own governance rules, while a comfort letter may be intended as a non-binding statement of support. The wording determines which it is, and Iraqi courts will examine the language rather than the title of the document.
Before giving any such document, the group should decide whether it is prepared to accept direct liability, cap the amount and duration, and record the decision in the parent’s minutes. The subsidiary’s contract should also be checked to ensure that the guarantee covers only the intended obligations, not every future variation or related agreement the subsidiary might sign. Clarity at this stage avoids disputes about whether the parent intended to stand behind the Iraqi company at all.
Conclusion & how Etihad Law Firm can help
Shareholder supervision works best when it is supported by a clear and legally effective local authority structure that third parties can see and rely on.
As Iraq corporate legal counsel for UAE-based companies, Etihad Law Firm reviews articles of association, management appointments, powers of attorney and bank mandates, drafts delegation frameworks and assists with contract review, helping UAE groups align regional approvals with the subsidiary’s legal decision-making and the authority it presents to customers, banks and other counterparties.