Structure of Financial Service Providers

According to the articles of association for financial service providers, they have at least

one governing body and one supervisory body as any other joint stock firms.

Subsequently, functions and responsibilities of these bodies are defined in related

regulations and constitution. Generally there are three separate kinds of bodies including

decision making body (stock holders and Assembly), governing body (board of

managers) and supervising body (inspector). In addition there are some different

specialized committees which are considered in constitutions to provide some service for

different part of the company. It is necessary to mention that there is just one difference

between them and it is about portfolio manager’s body .It has an additional supervising

body and it is trustee. We will define some of its responsibilities.

۱- Stockholders

Stock holders have the power to control the company via different tools. All stock

holders should be approved before establishing an entity by high council (investment

bank) or SEO (other financial service providers). The stock holders indecency and

competency should be perceived by regulators.

۲-  Assembly

The powers and functions of the company’s ordinary and extraordinary assembly (general

meetings) shall be the same powers and functions as prescribed in the Commercial Code

and in accordance with the rules and regulations which have been provided in the existing

articles of association for the assembly (ordinary and extraordinary general meetings) of

the private joint stock companies.

The company’s general meetings shall convene in accordance with the provisions of the

Commercial Code as follows:

  1. Ordinary general meeting: this general meeting shall convene at least once a

year so as to address the following issues:

a- hearing the report given by directors as regards the annual performance of the

previous fiscal year;

b- hearing the report given by the inspector––auditor;

c- Examining and approving financial statements of the previous fiscal year;

d- Approving the amount of distributable profit;

e- Approving the amounts of bonus, attendance fees, salaries and benefits for the

board of directors;

f- Appointing the principal inspector/auditor and alternate inspector–auditor of

the company and their fees;

g- Selecting (a) mass-circulated newspaper (s) to publish the company’s notices;

h- Appointing directors/executives;

i- Issuing securities in the name of company exclusive of convertible or

exchangeable securities with company shares;

j- Other issues which are within the jurisdiction of the ordinary general meeting

in accordance with the Commercial Code.

  1. The extraordinary general meeting: this general meeting shall convene at any

time to address the following issues:

a- modifications in the articles of association;

b- Change in the capital sum (increase or decrease);

c- Issuance of convertible or exchangeable securities with shares;

d- Premature dissolution of the company in compliance with the Commercial

Code and the Securities Market Act.

۳-  Board of Directors;

The company is run by a board of directors comprising at least 3 and at most 7 principal

members who are elected by the ordinary general meeting from among the shareholders

for a term of two years. The number of board member’s normally ends in an odd number

and the majority of them are constituted of non-executive members. The reelection of

board members for subsequent office-terms shall meet no impediment. The professional

qualifications of board members, whether the principal member or the alternate member

as well as the representatives of the legal entities sitting on the board of directors shall

have to be approved by the Organization as per the procedures prescribed by this

Organization. If the board members, whether natural persons or legal entities, lose their

qualifications, the alternate members shall substitute them. Where the representative of

the legal entity lacks qualifications, the legal entity sitting as a board member shall,

within the period of 15 days at the latest, introduce its substitute representative to the

Organization.

The board of directors shall have unlimited powers for any action taken in the name of

the company and for any activities and transactions relating to the company objectives

about which the decision-making is not within the competence of the general meetings.

Such powers are exercised as follows:

  1. To act as the company’s representative before the shareholders, all

governmental and non-governmental departments, public institutes, law courts and

other natural persons and legal entities;

  1. To approve in-house (internal) by-laws (rules) as proposed by the managing

director;

  1. To enforce the approvals of general meetings and approved rules after they

have been communicated;

  1. To appoint and remove the managing director and fix his salary and benefits;
  2. To make resolutions in respect of establishment and dissolution of agencies

or branches at any location inside and outside the country (Iran);

  1. To make all their efforts towards achieving the company objectives in the

most efficient and effective manner;

  1. To approve the organizational structure, employment requirements and the

scale of salaries and wages;

  1. To approve the annual budget as well as the long-term, medium-term and

short-term plans of the company;

  1. To open any type of account with banks and other authorized institutions and

operate it (them) in the name of the company;

  1. To fulfill the obligations undertaken by the company against other parties

and safeguard the rights and interests of the company against others;

  1. To issue, endorse, accept, pay and protest against the commercial papers;
  2. To conclude any type of contract, modify, cancel or revoke it as regards the

movable and immovable properties which are related to the company objectives

and conduct of all activities and transactions stated in article 2 of the present

articles of association as well as addressing all unilateral contracts/obligations;

  1. To take decisions on the issues related to registering and transacting all

intellectual rights including any type of patent, trade name or trade mark and

industrial name, intellectual property, goodwill and all presumptive privileges;

  1. To deposit in trust any type of documents, deeds, funds or securities

including their return, collection or recovery;

  1. To receive loans and facilities from banks, corporations and authorized

institutions pursuant to the rules provided in the present articles of association;

  1. To mortgage the company assets whether movable or immovable, and release

(redeem) them from encumbrance even on frequent occasions;

  1. To institute any civil proceeding or criminal case and defend any pending

case, whether civil or criminal, with any judicial authorities, law courts, public

prosecutor’s offices, special or public non-judicial authorities and Administrative

Justice Tribunal on behalf of the company; to defend the company against any

litigation (action) brought up versus the company, whether criminal or civil with

the judicial authorities or special or public non-judicial authorities and

Administrative Justice Tribunal; to appear in person at police departments and

exercise all the powers required in the course of proceedings from opening to

closing stages including appearance at hearing sessions, raising objection against

the court’s decree, lodging an appeal for revision (Court of Appeal), filing a

second appeal to the Supreme Court, making a protest and a request for rehearing;

to request for compromise and settlement, return of documents, records, dismissal

of the claim or the cause; to bring a claim of forgery, renunciation and, skepticism

about the counterparty’s evidence and return of exhibits and proof of the forger; to

sign the contracts containing the conditions for arbitration or arbitral agreement

and refer the claim or the case to arbitration and appoint and select the arbitrator

(with or without the right to make settlement); to seek the enforcement of the

arbitrator’s final and absolute award; to request for issuance of an enforcement writ

along with follow-up actions; to receive the judgment debt and funds in trust and

chase them up; to appoint the assessor and appraiser; to appoint and remove the

attorney and representative with frequent rights of substitution; to make confession

on the nature of claim, to implead the third party and defend the impleader,

counterclaim and defend against the counterparties; to accept or reject

administration of oath; to seek security on the remedy sought; to recover the loss

arising from offences and other similar issues;

  1. To establish the holders of authorized signature in the company and the terms

of reference (scope of powers and functions) of each one of them;

  1. To establish the internal control system to ensure the compliance of all

operations towards the company goals and within the framework of laws,

regulations, constitutions and in-house by-laws;

  1. To prepare the annual financial statements and the report on the performance

of the board of directors by presenting it to the inspector––auditor;

  1. To prepare the quarterly (mid-term) financial statements to be presented to

the inspector––auditor;

  1. To invite the ordinary and extraordinary general meetings and set the

agendas thereto;

  1. To propose any type of reserve/provision in additions to the statutory reserve;
  2. To propose distribution of profit (dividend) among shareholders;
  3. To monitor the activities and performance of company executives including

the managing director;

  1. To propose modification of articles of association to the extraordinary

general meeting;

  1. To cooperate with the Organization and the inspector––auditor in the

performance of their functions;

  1. To acquire assets, investment, and establish or enter into partnership to

establish various companies and other entities towards performance of duties and

realization of company goals;

  1. To open letters of credit (LCs) and accomplish all customs affairs to clear the

commodities which are required towards achievement of company objectives;

  1. To cooperate with international communities/bodies and join the respective

regional and global organizations;

  1. any powers and functions which, pursuant to the provisions of the Securities

Market Act and relevant rules, have been and shall be deemed to be within the

scope of the powers and functions of the board of directors.

۴- Inspector;

The inspector––auditor is entrusted with the following functions and responsibilities in

addition to the functions and responsibilities prescribed in the Commercial Code for the

joint-stock companies, the Securities Market Act, articles of association and other rules

and regulations in force:

۱) To make comments on the company’s annual financial statements in

compliance with the auditing standards and national accounting;

۲) To make comments on the accuracy of the information provided in any type of

report that the board of directors has presented to the general meeting;

۳) To present reports to the general meeting in respect of the adherence or nonadherence

to the rules and regulations by the company’s directors and staff

members during the fiscal year;

۴) To examine the company’s internal control systems during each fiscal year and

prepare a report thereon including the comment on the efficiency of the internal

control system, cases of breach, suggested amendments and present them to the

board of directors and auditing committee.

۵-  Trustee;

According to Article 18 of “The Regulations Governing the Establishment and Activity

of the portfolio manager”, In order to commence the portfolio managing activities, the

portfolio manager shall have to choose at least one legal person whose eligibility is

acceptable to the SEO as trustee and conclude a contract with it. The trustee’s functions

and responsibilities as well as its fee shall be established in the contract signed between

the portfolio manager and the trustee pursuant to the provisions herein. The portfolio

manager shall have to immediately deliver a copy of the contract to the trustee and

submit a copy of the same to the SEO for registration within two business days after the

contract has come into effect.

In addition, Article 21 of “The Regulations Governing the Establishment and Activity of

the portfolio manager” specifies: The trustee shall have to exercise regular control to

ensure that the portfolio manager:

  1. Abides by the portfolio management contracts that the portfolio manager has

signed with its clients, whether or not the trustee’s position has been accepted in

such contracts;

  1. Complies with the regulations on the establishment and activities of the

portfolio management firms;

  1. Complies with the rules that the SEO has delegated its regulatory functions to

the trustee as a party to the contract with the portfolio manager;

Additionally, if the trustee detects any violation of the foregoing issues, it shall

have to report the matter to the SEO and shall simultaneously give notices

required for rectification to the portfolio.