The holding company first emerged in the United States in the late 19th century as a crucial tool for economic concentration and dominance across various industrial, commercial, and service sectors. In the Arab world, the Lebanese legislator was among the first to regulate it under Legislative Decree No. 45 of 1983, with subsequent legislation following in other Arab countries.

A holding company is not a new type of company but rather a legal framework that allows one company to control other companies for the purpose of management, investment, and restructuring. In the Arab world, legislation in countries like Jordan, Saudi Arabia, and the UAE preceded its formal adoption by the Iraqi legislator, who incorporated it into the Iraqi Companies Law No. 21 of 1997 through Law No. 17 of 2019. The latter law defined a holding company and specified the conditions for its formation, as well as its rights and obligations.

The Legal Basis of a Holding Company in Iraqi Law

Article 7 bis, which was added to the Companies Law by Law No. 17 of 2019, states that a holding company is: A joint-stock company or a limited liability company that controls a joint-stock company or limited liability company/companies referred to as subsidiary companies.

The law establishes two conditions for a holding company to achieve control in Iraqi law:

1. Ownership: Owning more than half of the subsidiary's capital (50% + 1) in addition to controlling its management. It is self-evident that owning more than half of a company's capital grants the majority vote in decision-making, thereby achieving the required control over the company's management.

2. Control over the Board of Directors: Article 7 bis stipulates this condition for joint-stock companies, where the holding company must possess control over the board of directors of its joint-stock subsidiary.

In addition to these conditions, Article 7 bis requires that the name of the holding company be accompanied by the word (Holding) in all its documents, advertisements, and correspondence.

 

Foreign Contribution

Article 12 of the Companies Law No. 21 of 1997 permits foreign natural or legal persons to acquire membership in companies established under the law, including a holding company, as a founder, shareholder, or partner. This is particularly relevant for joint-stock and limited liability companies, provided that the Iraqi contribution is not less than 51% of the capital.

Powers and Privileges of a Holding Company

Article 7 bis defines the powers of a holding company with the aim of supporting the national economy, as stated in the explanatory memorandum of the amending law. These powers include:

1. Owning Movable and Immovable Assets within the Scope of its Activity: As per Article 7, Paragraph 2(a), a holding company can own assets like any other company, but this ownership is restricted to what is necessary for the company's objectives. For example, a company specializing in real estate development cannot own shares in a tobacco manufacturing company if it is not related to its business objectives.

2. Establishing and Managing Subsidiaries or Managing Other Companies it Holds Shares In: Article 7, Paragraph 2(b) of the Companies Law No. 21 of 1997 grants a holding company the right to establish its own subsidiaries and manage both the companies it establishes and the other companies it invests in. This right is the primary manifestation of a holding company's control over its subsidiaries, whether they are newly established or ones it has invested in.

3. Investing its Funds in Shares, Bonds, and Other Securities: Article 7, Paragraph 2(c) of the Iraqi Companies Law No. 21 of 1997 stipulates that a holding company in Iraq can "invest its funds in shares, bonds, and securities," which is self-explanatory and done through acquisition and subsequent investment.

4. Providing Credit and Support to the Subsidiary/Subsidiaries: Article 7, Paragraph 2(d) states that a holding company's objectives include "providing loans, guarantees, and financing to its subsidiary companies." This means a holding company can provide credit and support its subsidiaries' activities, including granting various types of loans and guaranteeing their activities.

5. Owning and Leasing Patents, Trademarks, and Intangible Rights to Subsidiaries or Others: By virtue of the aforementioned powers, establishing a holding company in Iraq or converting to this model allows for effective control over a specific sector by owning 51% or more of a subsidiary's shares. This threshold, in principle, enables the holding company to pass ordinary resolutions at the general assembly, appoint and dismiss the majority of the board of directors, direct the subsidiary's operational and financial policies, and approve its budgets and plans. This gives the holding company direct influence over the subsidiary's strategic direction without needing to acquire 100% of its shares.

The practical benefits also include the ease of portfolio restructuring: a holding company can sell or acquire subsidiaries, merge entities, separate activities, or bring in new investors at the subsidiary level without affecting the rest of the group. The holding structure also allows for risk segregation between entities, meaning the risks of each activity remain within its respective company and do not automatically transfer to other subsidiaries. All of this, however, depends on the efficiency of the holding company's management style.

Distinction Between a Subsidiary and a Company Branch

A subsidiary company is a company in which the holding company in Iraq acquires a majority of its shares to ensure its management. A clear distinction must be made between a subsidiary and a company branch. A subsidiary is an independent legal entity in its own right.

Legal Personality of a Company Branch

In contrast, a branch of a foreign company in Iraq does not possess any legal personality or independence. This was affirmed by the Federal Court of Cassation in its decision No. 1400/Civil Panel/2025. This decision confirms the provisions of the System for Branches of Foreign Companies in Iraq No. 2 of 2017 (amended), which defines a foreign company as "a company, institution, or entity registered outside of Iraq under a foreign law." The branch, in this context, is merely a representative of the parent company within Iraq and does not acquire a separate legal identity.

A question arises in this case: if a foreign company branch in Iraq does not have a legal personality, how are these companies handled from a legal perspective concerning laws like the labor law?

Even though the branch does not have an independent legal personality, it is considered the legal representative of the parent company inside Iraq. Therefore, lawsuits related to legal or labor violations are filed against the parent company, represented by the branch. The Iraqi judiciary handles the branch as the place where the actual activities are conducted, and thus, labor claims against the parent company are accepted by serving the branch in its capacity as the local representative.

Prohibited Activities for Holding and Subsidiary Companies

The Iraqi Companies Law prohibits holding companies and their subsidiaries from engaging in certain activities or actions, as follows:

Regarding a Holding Company: A holding company cannot engage in activities other than those specified exclusively by the law. Additionally, a holding company in the form of a joint-stock or limited liability company is prohibited from owning shares in or controlling companies in the form of a partnership or a single-owner project.

In this context, it is important to mention Article 9 of the Competition and Anti-Monopoly Law No. 14 of 2010, which stipulates: "Any merger between two or more companies or any restrictive commercial practice is prohibited if the merged company or a group of companies controls 50% or more of the total production of a specific commodity or service, or if it controls 50% or more of the total sales of a specific commodity or service."

This text applies to a holding company and its subsidiaries, and its purpose is to protect competition and prevent a single entity from monopolizing a market for a specific commodity or service, which could lead to price abuse.

Regarding a Subsidiary Company: Article 7, Paragraph 3(a) of the Iraqi Companies Law states that "a subsidiary company is prohibited from owning shares in its holding company, and any action that transfers ownership of shares from the holding company to the subsidiary is considered void."

The purpose of this provision is to prevent the reversal of the holding company concept. The fundamental idea behind a holding company is its control over a subsidiary or a group of subsidiaries. Therefore, the reverse scenario, where a subsidiary owns shares in its holding company, contradicts this founding principle. As such, the legislator has declared any action that contravenes this article to be void.

We advise you to take the proactive step of contacting a specialized law firm in Iraq. Obtaining professional legal consultation is a crucial step to ensure your interests are protected and that you have an accurate understanding of the local legal framework. Their experts can provide the necessary support and guidance to successfully complete your transactions and avoid any potential complications.

Sources

• "Holding Company" article available on U-S-History.com

• Commercial Companies According to Companies Law No. 21 of 1997 by Dr. Farouk Ibrahim Jasim, Baghdad, Comparative Law Library.

• Federal Court of Cassation Decision No. 1400/Civil Panel/2025.