According to Article 148 of the Commercial Law Amendment Bill of Iran, the inspector(s) are liable to verify the accuracy of the asset statement, performance period statement, profit and loss statement, and balance sheet prepared by the managers for submission to the general assembly and also to evaluate the information accuracy provided by the managers in Public assemblies.
The inspectors also shall ensure that the shareholders’ rights are protected and respected according to the regulations and the company’s Articles of Association (AOA). If the board member provides the shareholders with information contrary to the truth, the inspectors must inform the general assembly.
As mentioned earlier, according to the Commercial Law Amendment Bill, inspectors play an important role in companies. In this article, we will focus on the role and mechanism of the inspector’s selection and, most importantly, the matters that have yet to be discussed in commercial law, such as how the inspector resigns at his discretion. In this regard, it is essential to consult with experts in this field who have sufficient skills in both theoretical and practical areas.
Inspector
When a joint-stock company (public or private) starts the process of selecting managers and reviewing the company’s issues, it is necessary to include the selection of an inspector or inspectors in its agenda.
In simple terms, an inspector is selected by the general assembly with various duties, including monitoring the actions of the company managers.
Since the shareholders in a joint-stock company cannot individually interfere in the company’s affairs, the general assembly is solely held annually, and no necessary knowledge exists to review the company’s transactions, selecting an inspector from the legal point of view is essential.
The inspector is selected for a period of 1 year, and in addition to the main inspector, it is also mandatory to select a vice inspector. According to Article 146 of the Commercial Law Amendment Bill, in case of incapacity, death, resignation or disqualification, or failure to accept the position, the vice inspector will perform the inspection duties.
Inspector selection
The selection process of the first inspectors in a public joint stock company is by the Founding General Assembly and in a private joint stock company by the shareholders and by preparing and signing the meeting minutes. However, in the following, the Ordinary General Assembly has the authority to select the inspector.
If the general assembly does not select the inspector or the selected inspector refuses to display the reports, the public court located in the company’s headquarter will appoint an inspector according to the conditions and requirements mentioned in the articles of association (AOA) at the request of each beneficiary.
Requirements
According to Article 147 of the Commercial Law Amendment Bill, there is no barrier to inspector selection, and it only should NOT include the following:
- The inspector should not have a criminal record
- The inspector cannot be a member of the board of directors or the CEO
- The inspector cannot be the relative of the managers and CEO (this contains some levels and classes which the Legal Experts would clarify during the process).
- Anyone who receives salary from the board of directors or CEO of the company (includes the spouses)
If the selected inspector does not meet the conditions of the above article and the board approves the company’s statement of assets, balance sheet, and profit and loss account based on the unqualified inspector’s report, the approval will not be valid. In this situation, any beneficiary can request the annulment of the General Assembly’s decision from the court according to the Article 270 of the Amendment Bill.
Responsibilities
The inspector has two types of civil and criminal liability:
Civil Responsibility
The civil liability of the inspector(s) is subject to the general rules of civil liability. Suppose the inspector violates his legal duties and the regulations contained in the company’s articles of association, which causes losses to the company, shareholders, and any other persons. In that case, they have the right to claim damages, empowering them to seek justice.
Criminal Responsibility
According to Article 266 of the Amendment Bill of the Trade Law, if someone accepts the position of inspector knowing the legal prohibition, they will be considered criminally responsible. Legal prohibition means non-observance of items mentioned in items 147 and 111 of the amendment bill. Also, if false information is submitted in the reports to the general assembly or if such information is confirmed, the inspector will have criminal responsibility. However, if the inspector submits false information by mistake, they will not be considered criminally responsible.
Duties
Checking the financial accounts
According to Article 148 of the Amendment Bill, the inspector is obliged to confirm the accuracy of the company’s accounts. This duty extends to checking the accounts’ numbers and figures to ensure they are calculated correctly. The inspector is also responsible for checking the authenticity of papers and documents, ensuring there is neither inaccurate information nor forgery. However, the most crucial aspect of their role is the duty to report their findings to the general assembly, whether the accounts are accurate or not, and to provide a clear explanation of the reasons and items.
Notification
In the Ordinary General Assembly meeting, the inspector(s) must submit a comprehensive report on the company’s status to the assembly. The inspector is obliged to report the details of the transaction between the company and each of the managers or the CEO, and present their point of view about these transactions.
The inspector must report any violation or fault of the board members and CEO to the first general assembly. Also, if they are informed about the occurrence of a crime, they must inform the competent authority and report the issue to the first general assembly.
Furthermore, the inspector(s) must ensure that the shareholders’ rights are respected equally. If the managers provide information contrary to the truth to the shareholders, the inspectors are obliged to report the violence to the general assembly.
Dismissal and resignation of the inspector
According to the second part of Article 144 of the Amendment Bill of the Commercial Law, the ordinary general assembly can dismiss the inspector(s) at any time, provided that they also select their replacement.
The mechanism for dismissing the inspector is clearly stated in the regulations, and there is no ambiguity. However, the regulations provide little information about the inspector’s resignation. It is essential to consider that such a case will cause many problems in practice. For this purpose, drafting a professional article of association directly referring to the issue of the inspector’s resignation and establishing a specific method for it can be a suitable method to prevent possible problems.
For example, in the sample AOAs on the company registration office’s website, the general assembly is the competent authority regarding the inspector’s resignation or dismissal.
However, this does not work if the board of directors is absent or if a general assembly meeting cannot be held. Therefore, to prevent such problems, it is necessary to formulate a statute and foresee a mechanism regarding various issues, including the inspector’s resignation. Regarding this, you can benefit from our services by contacting Karimi & Associates Law Firm, which consists of experts and lawyers specializing in corporate law, including the drafting of articles of association and related matters.