Managing a Limited Liability Company:
Appointing and Deposing the Manager
- A) Appointing Manager:
The manager, such as corporate entities, can be appointed among the partners of companies or individuals outside the company. The manager may be an ordinary or legal person or a commercial company. The legislator has not defined specific conditions for managing a limited liability company, and therefore anyone with a tenant may be the manager of a limited liability company disregarding his / her age. The article 104 of the Commercial Code stipulates if the manager may be obliged (receive wage) or not. Company management includes a wage that sometimes amounts to a certain sum, and sometimes a percentage of sales or percent of annual profit. Of course, there is no problem that the salary of the manager is a combination of the three forms. The selection of the Managing Manager of Limited Liability Company may be made in the form of a company letter or Statute, or after the signature of such documents and through other documents. Usually, the partners appoint the manager or managers of the company. In such a case, the appointment of the manager is the co-decision of the partners; whether all partners sign the application or not. If the manager has not been determined during the registration and registration of the application, his election may lead to a majority of votes, as per Article 106 of the Commercial Code, regarding managing a company. This article states: "Recurring decisions of the company should be taken at least by a half of the capital ...", which is a majority based on the share disregarding the number of voters. If the first one does not reach the majority, all partners must be re-invited, which is the case where the majority of the partners decide, although the majority does not have half the capital. Of course, the statute can stipulate the order contrary to this (Article 106).
The issue that arises is that what will happen to the company if this majority is not achieved, given that the company should have a manager shortly after the formation. Suppose that the company only has two partners each having half the capital, but they do not agree with the management of the company. In this situation, should the company be liquidated, or each of partners will be considered a manager?
If the company letter have not proposed a solution to this issue, since the commercial code has not provided any specific procedure, and the civil law only permits the management of the company or authorized by the partners (Article 577 of the civil law), the management appointment is deemed as a problem and of the cases where each of the partners has the right to request the liquidation of the company from the court; but, by referring to Article 114 of the Commercial Code, we find that, contrary to what is foreseen for the Partnership companies (Section C, Article 136 commercial code), the company's liquidation is not based solely on reasons of justification, but in addition, the company must have lost at least half of the company's capital (Clause "c" of Article 114, commercial code).
That is why there is no way left unless the partners agree to dissolve the company or permit each other to trade other partner’s share. Otherwise, the seizure of each of them will be deemed as interference (Article 581 of the Civil Law). This situation, of course, is not commensurate with the nature of the company, and, after a short time, the implementation of paragraph (c) of Article 114 takes place and results in the loss of the company and the request to dissolve it by any of the partners. In our viewpoint, there is no other option except that the lawmaker establishes a rule for the company with limited liability like what is provided for partnership companies so that in such cases, each of the partners can apply for the liquidation of the company. Another solution is that in case of disagreement between the partners on the election of the manager, each of them is considered legally an independent manager, who can, without any further permission, commit to third parties to the company, the rule that France is acting on where partners can choose a manager or managers for a certain or unlimited period of time. If you do not specify a term for management, you must assume that the manager has been selected for an unlimited period to his life.
- B) Deposing the Manager:
The law of business in the status of the legal relationship between the manager and the limited liability company is not specific. Is the manager, lawyer of the company or partners, or is he considered as one of the company's entities? The lawmaker of the partnership companies and the joint-stock companies has settled the law and for partnership companies, the manager is considered the lawyer of the partners (Article 121). Answering this question is so important in this regard since we have to find the facilitated conditions for dismissing the manager, and that whether the manager is basically deposable or not.
Article 105 of the Commercial Code stipulates: "The company's managers will have all the necessary powers to represent and manage the company ...". What is the meaning of the representation?
In our view, the manager should be regarded as a company lawyer, that is, as we previously said about the company. As a result, whether the manager is from among the partners or not, can be deposed, but we have to divide the two assumptions:
- The Statute does not impose any specific conditions for the appointment of the Manager, in such a case, the Manager, subject to Article 106 of the Commercial Code, will be disposed with the majority of capital, without regard to the duration of his mission.
- The Statute has established certain conditions for the management of the company; such as having a minimum of literacy and expertise, in such a case, company manager can be dismissed with the same majority as provided for in Article 106 of the Commercial Code, but the selection of the new manager must be in accordance with the statute and company cannot choose a manager who does not enjoy same conditions of the previous manager (the said terms of Statute), otherwise, this would mean implied change in the provisions of the Articles of Statute, implementation of which would not be the that path, except by the majority of the capital and the number of partners, as per Article 111 of the Commercial Code .
Disposing the manager in certain conditions may result in the liability of partners. If the manager himself resigns temporarily and this resignation causes the loss of the company, partners and third parties, he will be held liable for incurring the loss under special civil rights as well as the civil and contractual liability. According to Iran's rights, neither the dismissal of the manager from the company nor his resignation from the management of the company requires the court's permission.
Manager’s authorities
Article 105 of the Commercial Code provides: "The companies’ managers will have all necessary authority to represent and manage the company, unless otherwise provided in the articles of Statute. Any contract for limiting the powers of the managers that is not specified in the articles of Statute is null and void to third parties ". This article has been adapted from article 24, paragraph 2, of the Commercial Law of France (1925), and there are indications of acceptance of the notion that the duties of the manager of the commercial company are not lawyers; that is what the legislator has stipulated for the managers of the partnership and the relative companies (Articles 121 and 185 of commercial code).
Article 105 of the Iranian Commercial Code is not a correct translation from Article 24 of the French Commercial Code and, in order to understand it correctly, it was better to word it as follows: "Unless a condition is contrary to the Articles of Statute, company managers will have all the necessary authority to run the company. Any contract to restrict the powers of managers, if not in accordance with the statute, is null and void to third parties. "
However, in order to properly understand the meaning of Article 105 of the Commercial Code, it is necessary to distinguish the powers of the manager against third parties and against the company and partners.
- A) Manager's authorities against third parties
The authorities of the manager against third parties are unlimited. Article 105 stipulates: "The company managers shall have all necessary powers to represent and manage the company ...".
Here, the company's administration means the execution of the company affairs, and concluding the deals that the manager of the company carries out. It should be said that the manager can do the most important things for the company, including the sale of property, whether movable or immovable, transfer of capital and company properties. The rule contained in Article 105 has a public order feature, since partners are prohibited from limiting the powers of the manager after signing the statute. Whenever such a deal is stipulated by the partners, the ratio of third parties will be null and void. This rule derives from the general rights of the contracts and therefore protects the rights of third parties; but this does not mean that all actions of the manager of the company will commit the company because:
Article 105 is not applicable unless the company's representing manager acts.
The application of Article 105 is due to the fact that the company has a statute, and there is no limitation for the manager in the statute. If the company does not have a statute, only the general civil rights provisions are applicable, not the provisions of Article 105. This separation of legislation between the case in which the company has a statute and the case without a statute is not reasonable, while we know the regulation that the statute is not required for a limited liability company, and if there is a statute, there is no obligation to advertise that newspaper.
The actions of the manager should be limited to the subject of the company and, therefore, the manager's powers are limited to the absolute scope of the company, not outside it.
What remains is the range of authority of each of managers, if there is more than one manager. In case the statute has foreseen about such particular assumption, there will be no problem; however, if there is no specific forecast, it should be understood that each manager has all the powers necessary for the management of the company and its representation. An interpretation other than this from Article 105 of the Commercial Code would be against the interests of third parties; that is, contrary to the issue for which such article is deducted.
- B) Authorities of the Manager against the company and partners:
As we noticed, Article 105 stipulates that company partners, that is, those who sign the articles of statute, may freely restrict their powers, or do it later, together with the partners who are consequently assigned. The result of this situation for the company and partners are two of the following assumptions:
Whenever, the partners limit the statute of the powers of the manager or managers and foresee, for example, that significant obligatory documents must be signed by most partners, or decide not to impose the property of the company, or the sale of immovable property of the company is subject to the decision of all partners, such terms must be observed by the manager and if the manager does not comply, the company and partners will not be responsible for fulfilling these obligations, and only manager will be responsible.
If the statute is silent against the powers of the manager, the manager has absolute authority, provided that the separate contract between the partners and the manager has not limited his powers. In other words, the manager's powers can be limited to the company and the partners through a private contract, in such case, when a manager exceeds the scope of his contractual authority, he will be responsible against the company and partners; but, such issue will not apply to third parties, assuming that it is not mentioned in statute.
Manager’s responsibilities:
The responsibilities that the manager enjoys to fulfill his duties and responsibilities must be divided into two types: civil liability and criminal liability.
- A) Civil liability of the manager
Our commercial code has defined the civil liabilities of manager in Liability Limited Companies very briefly. Article 101 of the Law is the only one that deals with the civil liability of the manager of a limited liability with no distinction being made between specific responsibilities. This article says: "If a void sentence of the company is issued under the previous article's [ that is in cases a liability limited company is registered contrary to Articles 96 and 97 of the Commercial Code, thus is null and void] the partners whose acts are the reason of void as well as the Supervisory Board and the Managers who were at work at the time of such action and have not performed their duty, will be liable against the other partners and third parties as per the losses incurred ... ". Therefore, this responsibility is only void of the company, while the manager may as the manager and despite the fact that the company is formed correctly, commit violations that cause damage to the company, the partners or third parties. In this case, what is the civil liability of the manager? To answer this question, we must separate two types of civil liabilities: The civil liability of the manager under the commercial code and his civil liability under general rules.
1) The civil liability of the manager under the commercial code:
This responsibility has a guaranteed aspect, therefore, contrary to the general rules of civil liability, and must only be applied in particular cases, that is issues of Article 101 of the Commercial Code. So, the conditions of applying this responsibility are the same as the last article:
- The responsibility of the manager should cause the company to be void, that is, the failure to observe the provisions of Articles 96 and 97 of the Commercial Code regarding the formation of the company and the calendar and the value limit of the non-cash shares
- The manager is responsible when he is at work at time of causing the invalidation or immediately thereafter, not only his actions causes the void;
- The condition of the manager's responsibility is not to perform the duty, and in other words, has not made attempts to prevent the void. The commercial code considers the negative conduct of the manager for causing void as falsely and causing liability.
But the question that arises is whether, in case of multiplicity of managers, each manager is responsible for not fulfilling his own task or that failure to perform a task on behalf of each manager will also be the responsibility of the other manager. Article 101 of the Commercial Code emphasizes: "... Managers who have been in default or immediately afterwards have failed to perform their duties, will be liable against other partners and third parties ..." Whether the responsibility does not this mean that the manager's error is the responsibility of all of them? The answer to this question: we think Not; as for the liability of article 101, except the guarantied aspect , is a type of liability due to error, and therefore, so that no individual person has made a mistake in error, will not be responsible, of course, if the error is shared by and by the various managers of the company, it will bring about guaranty liability i.e. each one of them can be fined for all the damages to the beneficiaries, so that all losses of the past persons are paid.
The beneficiaries are: each partner provided that they incurred personal loss or the company if loss is incurred to the company. In first case, the claim will be settled by partner and the second case, the new manager of the company. The responsibility of the manager can already be raised to third parties, i.e. the creditors of the company. If there is no bankruptcy, each third party will lodge litigation against the manager individually; otherwise, the creditor's claim must be in the interest of the liquidator and in accordance with the law of commerce about bankruptcy. The duration of claim in Article 101 of the Commercial Code is ten years.
2) Civil liability of the manager under general rule:
Except for the failure to comply with Articles 96 and 97 of the Commercial Code, the civil liability of the manager of a limited liability company is subject to general rules, such as when the managers have failed to act in accordance with the statutes or the company's office. Special managers will be responsible for:
- The Manager shall not divide his or her own interests (Article 115 of commercial code), otherwise his action is an error and he is required to pay damages caused by the failure of the company, partners or third parties. Here, whenever there are multiple managers, their responsibility is not guaranteed, even if they are jointly committed an error.
- Whenever the manager has disobeyed the authority conferred by the company or the statute, he will be liable.
- The management of the company may also be responsible for the manager's error;
- The responsibility of the director comes up when the law does not provide for precautionary measures in accordance with Article 113 of the Commercial Code. Of course, the civil liability of the director may give rise to his criminal liability, which must be discussed.
- B) The criminal liability of manager
The liability of the manager of a limited liability company is determined by Article 115 of the Commercial Code. Of course, this article does not cover only the managers of the company, but also the "A" of it, the founders, and clause "B" applies to anyone, including the manager, partner or founder. Article 115 of the Business Act considers managers as fraudsters:
1) If the managers have inaccurately declared the total payment of cash and cash balances and the submission of non-cash contributions to the company and documents that must be filed for registration. Clause (a) of Article 115, which states these points, is criticized; whether the punishment for fraud is made by the manager as being in the form of a calendar and unrealistic surrendering of the share of the company, which is the stated documents, which must be submitted to the registration of the company; However, given that the registration of the company i.e. registration of the company with the registration office of the company, is not necessary for its formation, there may be unrealistic calendars and submissions that have never been filed and the third parties may have misused the instrument, With the participation and the result of their concluding losses. Should such actions not be considered punishable?
- If the managers of a limited liability company, in the absence of an asset or a citation of a financial asset, have shared a fake benefit between the partners (paragraph (c) of Article 115). The division of the interests of a particular person will be deemed to be shared between partners, without the company having gained the benefit. In such a case, what the partners receive as a profit is a part of the capital of the company, and since the company's capital is the guarantee of the creditors of the company; the legislator has banned this issue. Of course, if partners have received such a profit, they must redeem it; indeed, they have received something that has no right to receive it. As stated, due to third party litigation about the company's transactions, in accordance with Article 219 of the Commercial Code, the five-year review period is in effect. Consequently, the Penal Code, Article 115 of the Commercial Code, deals with the imposition of profits exclusively on the manager, and the partners are not covered by this article.
However, the question raised in Article 115 is whether the clause (b) of this article includes the managers of the company. Indeed, paragraph (b) does not speak of managers, but says: "Those who have fraudulent means of contributing non-cash contributions beyond the real price of the calendar", but does the term "people" include the manager? Our view is that since the calendar is not part of the manager's assignment, the manager cannot be considered responsible unless the partner's title has been calendared; only the calendar that has been operated by the partners is effective in forming the company. Nevertheless, in our opinion, subject to Clause (c) of this Article, any person acting as an official or unofficial expert on an unrealistic calendar will be bound by the clause. Of course, the perpetrator is punishable when the determined price is more than the real price.