The shift from a relationship of cooperation to conflict between partners not only threatens the private interests of shareholders but also disrupts production and harms the overall economy due to the company's financial difficulties and mounting liabilities. Therefore, based on the principle of preserving the economic enterprise, the law has established the "partner dismissal lawsuit" as a fundamental remedy aimed at eliminating the root cause of the conflict while keeping the company operational. This protects the company from collapse and the fines resulting from its mismanagement.
Does Iraqi law recognize the "partner dismissal lawsuit"?
The short answer is: there is no general provision allowing for the dismissal of a partner in joint-stock or limited liability companies.
However, the Iraqi legislator has provided a single, explicit recourse in the chapter on "simple companies." According to Article (191) of the Companies Law, the remaining partners have the right to resort to the courts. Consequently, they can request the dismissal of a partner against their will.
Article (191): The Legal Recourse for Dismissing a Partner
This article stipulates that a majority of the partners in a simple company may request the Court of First Instance to issue a decision to dismiss a partner, provided there are "serious grounds" justifying such action.
What are the “serious grounds” that the court accepts?
Since the law does not specify these grounds, they can be interpreted as follows:
A partner's breach of their essential obligations stipulated in the company's articles of association.
A partner's actions that harm the company's interests or cause a dispute that paralyzes its operations.
Failure to contribute the share of capital they pledged.
What about other types of companies (limited, partnership, and joint-stock)?
In these types of companies, the law does not provide for a “dismissal lawsuit.” If the partners wish to remove a “disruptive” partner, they pursue entirely different legal avenues, such as:
Liquidation of the partner's share: in the event of their bankruptcy or seizure of their share by a personal creditor (according to Article 70).
Withdrawal of the partner: a voluntary act by the partner themselves.
Amendment of the company's articles of association: by a resolution of the general assembly and the consent of the party to be removed from the company's articles of association. However, this must comply with the formal procedures and legal approvals, and it is often difficult if the partner holds a significant share.
Consequences of a Dismissal Decision (in a Simple Company)
If the court is convinced by the reasons and issues a dismissal decision, the following consequences apply:
Continuity of the Company: The company is not dissolved by the departure of the dismissed partner, but continues among the remaining partners (Article 191).
Valuation of Shares: The value of the dismissed partner's share is determined by agreement or by an expert appointed by the court, and is paid to the expert in cash.
Liability for Debts: The dismissed partner remains liable for the debts incurred by the company up to the date of their dismissal.
Comparing Iraqi and Emirati legislation, we observe the following:
The text in Emirati law is general and not exhaustive. Article 677 of the UAE Civil Transactions Law states: “A majority of the partners may request the court to dismiss any partner if they have serious grounds justifying the dismissal.”
This means that a request to dismiss a partner submitted to the court applies to all types of companies, not just a specific type, unlike Iraqi legislation, which limits it to simple companies only.
In Egyptian legislation, this right to dismiss a partner is not explicitly addressed in the Companies Law. However, it is included in the Civil Code: “Each partner may request the court to dismiss any partner whose presence in the company has raised objections to its renewal or whose actions could be considered grounds for dissolving the company, provided that the company remains in existence among the remaining partners.”
Legal Advice
Since the right to dismiss a partner through judicial means is limited to one type of company (the simple company), and since limited liability and joint-stock companies are the most common, the best way to protect your business is to draft the company's articles of association (the basic articles of association).
The articles of association should include clear clauses regarding withdrawal and mechanisms for resolving fundamental disputes. This is because judges in limited liability and joint-stock companies are bound by the provisions of the law. Furthermore, the judge's authority to dismiss a partner is limited to rare cases related to the partner's incapacity or bankruptcy.
In conclusion: In Iraq, if you are in a simple company, the law grants you the right to request dismissal through the courts. In other types of companies, the “contract” is the master of rules, and searching for legal loopholes to remove a defaulting partner requires high precision and expertise in corporate law.
