Liquidation as a reason for the expiration of a company’s legal personality according to Iraqi law

8 min 49 sec February 18, 2026 (Edited) الترجمة العربية

Written by

Ali Talib Fezea

Associate

a.fezea@tamimi.com View LinkedIn Profile

In the dynamic world of business, the lifecycle of companies is not without beginnings and endings. Just as companies are established with capital and ambitions, they may also face circumstances that lead to their legal termination. The legal personality of companies represents the cornerstone of economic and legal life, as it grants commercial entities an independent existence that entitles them to enjoy rights and bear obligations. However, this legal personality, like that of a natural person, is not eternal, but is subject to extinction when the reasons that created it cease to exist. The expiration of legal personality is a legal end to the company’s life, which has very important implications for shareholders, creditors, and the economy as a whole.Most legislations regulate this termination through a number of stated reasons and cases, foremost among them being the liquidation process, which represents the actual legal mechanism for terminating the legal personality of the company.

Among the cases of dissolution recognized by Iraqi legislation, particularly in the amended Iraqi Companies Law No. 21 of 1997, “liquidation” stands out as one of the most important, practical, and complex reasons. It constitutes the final stage in the life of a company, where its assets are liquidated, its debts are settled, and any remaining assets are distributed to the rights holders. Liquidation constitutes the legal framework regulating the conclusion of a company’s activities.

This article aims to review the role of liquidation as a case of the expiration of a company’s legal personality in Iraqi law. We will discuss the concept of liquidation and its importance, the reasons that lead to it, the stages it goes through, and how this process constitutes the legal guarantee for officially and orderly declaring the death of a company, protecting the rights of all relevant parties.

Concept of liquidation:

The legal concept of liquidation means dissolving the company, eliminating its legal personality, and settling the rights and obligations incurred by the company before its liquidation decision, within legal procedures that allow creditors and others to obtain their rights, resulting in the termination of the company’s actual existence.

Liquidation, therefore, is the legal mechanism regulating the termination of a company’s life, the sale of its assets, the settlement of its debts, and the distribution of remaining assets to rights holders (shareholders or partners). It is considered the final stage in the legal entity’s life. The legal personality of a company does not cease upon the decision to dissolve it; rather, it remains an expired legal entity (in liquidation) until the liquidation process is completed.

The liquidation process may have main objectives that can be summarized as follows:

• Asset Realization: Converting all company assets (real estate, machinery, stocks, receivables) into cash (financial liquidity).
• Payment of obligations: using these funds to pay the company’s debts to creditors according to the law.
• Distribution of the remainder: Distribution of the remaining funds to shareholders or partners in proportion to their shares.
• Final De-registration: After all these procedures are completed, the company is de-registered from the commercial register, at which point its legal personality is finally extinguished and it ceases to exist legally.

Liquidation is divided into two types according to its causes (which will be explained later). It may be voluntary liquidation by a decision of the General Assembly composed of shareholders, where the General Assembly, upon fulfilling the legal quorum for convening (majority of shareholders), can decide, by a majority of the votes of those present, to liquidate the company and appoint a liquidator to carry out the liquidation procedures. Or it may be compulsory liquidation when any of the reasons specified by law for mandatory liquidation occur.

Liquidation differs from other cases of the expiration of the company’s legal personality, as in Iraqi law, which are merger, transformation, and union. According to the text of paragraph four/147 of the law, the merger or transformation of a company leads to the expiration of its personality. A merger is a contract between two or more companies where one or more companies unite with another company, resulting in the dissolution of their personality and the transfer of their assets, liabilities, and debts to the other company. The merger process involves a company, called the joining company, joining another company, called the acquiring company. This results in the dissolution of the joining company’s personality, while the acquiring company retains its legal personality, provided that it amends its contract and documents to conform to its new status. This is the most common situation in practice, where a strong company with greater economic importance takes over a less important company.

Or the merger may be by combining two or more companies to form a new entity with a new legal personality that differs from the entities that originally established it.

As for conversion, it is a change in the type of company to another type, and its purpose is to change the legal form of the company in a way that allows partners to develop and grow the company. Article 153 of the Law restricted conversion with specific conditions:

First: A joint-stock company may not be converted into a limited liability company, a partnership, or an individual enterprise, nor may a limited liability company be converted into a partnership.

Secondly, a limited liability company or a partnership may not be converted into a sole proprietorship unless the number of its members decreases to one partner.

Third – A joint stock company, limited liability company, partnership, or individual enterprise may not be converted into a simple company.

In both cases of merger and transformation, the decision is taken by the General Assembly of the company.

Thus, the most important difference is that liquidation terminates the legal personality, while merger, amalgamation, and conversion preserve the company’s legal personality or transform it into another entity, which means the continuity of activity, obligations, and rights in one way or another.

Reasons for liquidation:

Liquidation is not merely the shareholders’ desire to terminate their partnership and the existing commercial relationship; rather, liquidation may have reasons determined by law for regulatory or economic purposes. Among the reasons stipulated by the current law are:

1. The company has not commenced its operations despite two years having passed since its establishment without a legitimate excuse
2. The company ceases to carry out its activity for a continuous period exceeding two years without a legitimate excuse
3. The company’s completion of the project for which it was established, or the impossibility of its implementation
4. The company losing 75% of its nominal capital without taking the legally required measures.
5.  by a decision of the General Assembly of the company.

Therefore, these reasons (1-4) relate to regulatory matters established by law to control the context of economic life and business for companies. It is not practically justifiable for a company to cease operations or not engage in its activity for two years, or to complete the project for which it was established and remain in its current state. Therefore, the law stipulated these reasons to allow for greater effectiveness in controlling the activity of companies in the market. If these reasons are met, the dissolution terminates the legal entity’s life, and its liquidation ensues.

It should be noted that the occurrence of the above cases does not automatically entail the expiration of the personality without going through the procedures stipulated by law, as Article 158 of the Companies Law indicated (if one of the reasons stipulated in the paragraphs occurs.. The General Assembly recommended liquidating the company.. etc.) As a result, the decision of the General Assembly/General Authority of the company to liquidate the company is required and necessary, but one of the above reasons can be relied upon in justifying the liquidation decision.

Liquidation stages

The liquidation goes through procedural and executive stages. The procedural stages include the general assembly’s decision to liquidate, the Companies Registrar’s approval, the issuance of its decision to liquidate, and obtaining the necessary approvals. As for the executive duties, they are represented by the legal and accounting duties performed by the liquidator, as he inventories assets and debts, sells existing assets if any, collects debts, pays creditors’ debts, distributes the remainder, and prepares the final account.

and the legal status of the company during liquidation and its effects.

After the decision of the Registrar of Companies to place the company under liquidation in accordance with the provisions of Article 160 of the law, the legal status of the company changes. Although it retains its legal personality, it is not fully maintained, but only to the extent that allows the completion of the liquidation process. This is because the decision of the company’s general assembly to liquidate the company has arranged some legal effects that changed the legal nature of the company’s personality in an effort to terminate the personality and completely dissolve the company. The question here is about the company’s ability to conclude deals or agreements or dispose of funds, and whether it is eligible to conclude contracts and bear obligations or exercise all its powers, and whether the authorized manager remains able to express the will of the company’s legal personality?

The answer is that the text of Article 163 of the law is clear in its ruling, as it states: “The company shall, upon being notified of the liquidation decision, cease to make any change in its membership and to incur any new obligation, and its activity shall continue to the extent necessary to fulfill its obligations as required by the liquidation process.” This means that the company’s existence and legal entity are limited to completing the liquidation process and fulfilling the obligations and rights incurred by it, and any financial transaction or contract will be subject to nullification. Furthermore, the authorized manager’s mission ends from the date of his notification of the liquidation decision, and all powers he enjoyed are transferred to the liquidator appointed by the Registrar of Companies (the department supervising the implementation of liquidation provisions). Therefore, the legal status of the company during the liquidation process is a special status dictated by the legal and commercial nature of the company, a status in which the Registrar of Companies Department, in order to preserve the rights of third parties and the integrity of commercial transactions, supervises the liquidation procedures and the decisions they require to enable the company, which is close to its dissolution and expiry, to fulfill obligations, return rights, and settle all its affairs. This is a situation in which the Registrar of Companies Department, which created the company’s legal personality, has the upper hand in controlling the company’s actions through the process carried out by the liquidator.