Iran's Securities Regulator Enacts a Single Directive on Capital Increases From Asset Revaluation; the Article 141 Threshold Remains 50 Percent of Registered Capital (Wednesday, 5 August 2026)

Before you calculate a company's price to earnings ratio, a simpler number decides whether that company stays standing at all: accumulated losses as a share of registered capital. Article 141 of Iran's Commercial Code draws a line on that ratio, and when the line is crossed a mechanism fires whose results retail shareholders see on the board constantly without knowing the cause: a symbol suddenly suspended, or a wave of capital increases in the hundreds of percent with no new money attached.

The subject has become current again. On 22 June 2026 (1 Tir 1405) the board of the Securities and Exchange Organization (SEO) approved the "Directive on the manner of capital increases from asset revaluation in public joint stock companies registered with the Organization", and its enactment was announced on 1 August 2026 (10 Mordad 1405). That route is the most common way companies exit the scope of Article 141.

Background: the text of the article and the threshold it sets

The text of Article 141 (as amended in 1347, i.e. 1968) is explicit: "If as a result of losses incurred at least half of the company's capital is lost, the board of directors is obliged to immediately convene an extraordinary general meeting of shareholders so that the question of dissolution or continuation of the company may be deliberated and voted upon. Should that meeting not vote for dissolution, it must, in the same session and observing the provisions of Article 6 of this law, reduce the company's capital to the amount of the remaining capital."

The second paragraph of the same article is read less often and matters more: if the board fails to convene the extraordinary meeting, or the meeting convened cannot be constituted under legal rules, "any interested party may request the dissolution of the company from a competent court". This is not an accounting recommendation; it is a legal obligation with a judicial remedy behind it.

Three points for reading the threshold correctly. First, the measuring base is registered capital, not the company's market value. Second, what is measured is accumulated losses on the balance sheet, not the loss of a single year. Third, crossing the line does not by itself mean dissolution; it means the decision on dissolution or continuation must be taken at an extraordinary general meeting. To locate these two figures in company filings, our practical guide to reading Codal reports is the place to start. (Codal is Iran's mandatory corporate disclosure system.)

The numbers: the chain in two dated cases

The first case is Mellal Credit Institution. Based on the central bank's official announcement when it appointed a supervisory board in Aban 1404 (November 2025), the institution's accumulated losses stood at roughly 65 trillion tomans against registered capital of 20,000 billion rials (2 trillion tomans). That is accumulated losses of about 32 times registered capital, where the Article 141 threshold is one half of capital. The symbol's suspension from Aban 1404 followed the institution falling within Article 141 for three consecutive fiscal years, together with the late filing of audited financial statements. The full case file is in our analysis Vomelal Under the Lens.

The second case shows the exit route. In 1398 (2019), Pars Refractories obtained approval for a capital increase of roughly 1,519 percent from the surplus on revaluation of its assets (machinery, land and buildings), with the stated aim of restructuring its finances within the law. The full analysis is published as Kafpars Under the Lens.

Drivers: why revaluation is the standard way out

The mechanism is simple. Article 141 measures accumulated losses against registered capital, so there are two ways out of its scope: shrink the accumulated losses, which requires genuine profitability over several periods, or enlarge the denominator by raising registered capital. The second is far faster.

The legal basis exists as well. Under Article 14 of the "Law on Maximising the Use of the Country's Production and Service Capacity and Supporting Iranian Goods", capital increases from asset revaluation are permitted for the purpose of financial restructuring. In practice, assets carried at historical cost (land bought decades ago) are revalued at current prices and the resulting surplus is transferred to capital. Registered capital multiplies, the ratio of accumulated losses to capital falls below the threshold, and the company leaves the scope of the article.

What does not change at that moment matters more. Not a single rial of new money enters the company; no new machinery is bought, no debt is settled, no operating margin improves. The company's operating earning power is exactly what it was before the meeting. On top of that, recording assets at current prices raises depreciation expense in later years and can put further pressure on profit. The result is the pattern seen at Pars Refractories: the legal position is repaired, but because the operating problem was never solved, loss pressure returns after a few periods.

What the new directive changed

As reported by Bourse News on 1 August 2026, Zeinab Fallah, head of the Capital Market Legal Advisers and Regulation Drafting Centre, said the directive was approved by the SEO board on 22 June 2026 and that, after initial approval, market participants' comments were gathered through a public consultation and reflected in the draft. Three practical changes emerge from her account:

• Mandatory official court appraiser: she said the most emphasised point is "the necessity of valuing assets on the basis of the opinion of an official appraiser of the Ministry of Justice". That clause goes straight to where the ambiguity was greatest, namely estimating the revaluation surplus.
• A standard for valuing shares: the rules set standards for valuing shares held as an asset that is transferred into the company's capital.
• Consolidation of scattered rules: earlier resolutions were reviewed, those inconsistent with current requirements were repealed, and the rest were consolidated into a single directive.

In the Organization's own framing, the review was motivated by the fact that ambiguity in estimating asset valuations "was overshadowing shareholders' rights".

What it means for a retail shareholder

There are three tangible effects. First, in a capital increase of this kind the shareholder receives bonus shares and the price per share theoretically shrinks in the same proportion; the shareholder's holding is unchanged at that instant. Second, the unadjusted price chart becomes misleading after such an event and can manufacture an "illusion of decline". Third, for a company that repeatedly falls within Article 141, conventional valuation ratios stop working: when shareholders' equity is negative, price to book is uninterpretable, and with negative earnings per share, price to earnings is meaningless too.

Today's market backdrop is worth noting: at the close of Wednesday, 5 August 2026, the Tehran Stock Exchange main index (TEDPIX) stood at 5,407,901 points, up 130,549 points or 2.47 percent. The latest index level is tracked on our prices pages. In a market setting records, the distance between a healthy company and one inside Article 141 is easier than ever to overlook.

Outlook

This section is interpretation, not reported fact. Requiring an official court appraiser lowers the ceiling on a company's discretion to inflate the revaluation surplus, and should narrow the spread of reported figures; its effect on operating profitability, however, is nil, because the instrument was never built for that. Consolidating the rules shortens the administrative path more than it changes the substance. Any sharper judgement should rest on the full text of the directive in the capital market regulations portal and on how meetings actually behave in the coming months, not on forecasting.

Conclusion

Half of capital is a legal line, not an analytical rule of thumb, and that is precisely what makes it decisive: crossing it obliges the board to convene an extraordinary meeting and gives any interested party the right to go to court. The standard corporate answer is a capital increase from asset revaluation, which lifts registered capital without new money arriving, and the single directive approved on 22 June 2026 has made that route more disciplined. Remember one thing: leaving the scope of Article 141 is a legal repair, not a fundamental improvement, and the two should never be confused.

What to watch

• The ratio of accumulated losses to registered capital in each symbol's latest financial statements, before any valuation ratio.
• Notices convening extraordinary general meetings on Article 141 in Codal, and whether the meeting voted for continuation or for a capital reduction.
• The official court appraiser's report attached to a capital increase plan, and the gap between the appraised figure and book value.
• The trend in operating profit in the periods after a revaluation, the only real measure of improvement.
• The effect of higher depreciation expense on profit in the periods after assets are recorded at current prices.

This report is informational and educational analysis based on the text of the law and official announcements. It is neutral, carries no buy or sell advice, and does not constitute legal advice. Figures are given with their own reference dates and may change.