The most important types of companies are:
1. Partnerships - general partnerships / equity partnerships / undeclared partnerships
2. Limited liability companies (SARL)
3. Limited companies (SA)
4. Foreign companies (branches and representation offices)
5. Sales representation
6. Holding companies
7. Offshore companies
The two categories of partnerships are:
• General partnerships (SNC)
• Equity partnerships (SCS)
- Partnerships are formed of two or more people.
- The primary characteristic of this form is the personal contribution made by each partner, because they are all personally responsible for the company’s debt and commitments.
- No capital amount is required by law.
- The company must register with the Trade Registry because it exercises a commercial activity.
- The company’s name includes the names of some or all of the partners and is typically followed by “et Cie” (“& Co”).
- An equity partnership can have two types of partners:
Managing partners who own and control the business and are responsible for all its commitments
Silent partners who are the financial backers and are not involved in management of the business. Their responsibility is limited to their respective contributions.
B. Undeclared partnerships
- An undeclared partnership is known only to the concerned parties for the purpose of fulfilling a particular project and, because it is secret, it cannot be registered.
- A partnership agreement defines the partners’ rights and obligations, as well as their interest in the venture’s profits and losses.
- Each party is responsible for its own assets. Despite their secrecy, undeclared partnership agreements are still binding in the event of a dispute.
2. Limited liability companies (SARL)
- A limited liability company is formed by three to 20 members.
Its business name is usually anonymous, followed by the letters SARL. The partners’ names may or may not be included in the company’s name.
- Capital of 5,000,000 Lebanese pounds (equivalent to US$3,334) must be paid in full.
- Each partner’s liability is strictly limited to the value of shares that each one holds.
- The capital must be deposited in full with a bank, in the company’s name.
- Management of the company can be assigned to one or more of the partners, and the managing director cannot conduct any business or transactions in the company’s name in which he/she has any sort of interest, unless previously authorized to do so.
- Limited liability companies cannot engage in the following businesses: banking, financial operations or insurance.
- The company must be formed with the mutual consent of the founding members, incorporated into the company’s articles of association / memorandum of association, which must be notarized or signed at the competent Trade Registry.
- A member’s legal incapacity or bankruptcy does not require the company’s dissolution. The shares in an anonymous limited liability company are non-negotiable and may not be transferred to a third party except with the prior approval of members representing at least 75% of the company’s equity.
3. Limited companies
- A limited company is formed by three or more people.
- It must have capital of at least 30 million Lebanese pounds (equivalent to US$20,000).
- The company’s shares give its shareholders membership rights in the company, the right to participate in its management, and voting rights.
- Those shares are negotiable and transferable.
- Each shareholder’s liability is strictly limited to the value of the shares they hold.
- The Board of Directors must put 10% of the net profits aside as a statutory reserve until such time as that reserve fund reaches an amount equal to one third of the company’s equity.
- Limited companies must appoint an auditor.
- Lebanese law does not limit foreign interests in limited companies.
- There are indirect limitations however, such as the fact that the Board of Directors must have at least a certain number of Lebanese members among the maximum as 12 members.
- Another limitation of limited companies relates to those whose corporate object is the acquisition and trade of real property assets in Lebanon.
- With a limited number of exceptions as mentioned, such as real property, insurance, media companies and banks, there are no real limits on the proportion of the company’s equity that can be held by foreign nationals.
- The principle of holdings by non-Lebanese nationals is however mitigated by the condition that a certain number of members of the Board of Directors must be Lebanese and that each member of the Board must a hold at least a minimum number of shares.
- Limited companies also have the option of issuing shares and convertible bonds.
- No one with a criminal record (in Lebanon or abroad) or who has been insolvent in the past 10 years (unless fully discharged) can participate in the company’s activities.
- Each limited company incorporated in Lebanon must have its registered offices in that country.
- The Board of Directors has three to 12 members and is responsible for the company’s operations.
- The Board elects one of its members as Chairperson, who is then responsible for executing the Board’s resolutions.
- If the Chair is not Lebanese, he/she must have a valid work permit.
- Shareholders’ meetings are held at least once a year.
The number of votes that each member may cast is the same as the number of shares they possess.
- Shareholders may use proxies that allow others to attend meetings and vote in their name.
- The ordinary shareholders’ meeting takes place shortly after the end of each financial year to:
- Discuss and finalize the accounts, discharge management, pay out dividends, appoint new members of the Board and/or auditors and make any other decisions that may need to be made in the company’s interest.
4. Branches / representation offices of a foreign company
- Foreign companies that want to do business in Lebanon will need to open a branch or a local representation office.
- To establish a branch, the foreign company’s Board of Directors must issue a proxy to a person residing in Lebanon, granting him/her the authority to register the company’s branch or office in Lebanon, to represent it, to sign documents and to take any necessary measures in its name.
- The required documents are a copy of the parent company’s articles of association and a copy of a resolution by the main company’s Board of Directors deciding to open a local branch or representation office and, in particular, naming its representative and granting him/her the necessary powers to represent it.
What is the difference between a representation office and a local branch?
- A representation office is a technical support office for the market that handles public relations.
- By law, this type of office cannot exercise any profit-generating commercial activity.
- Consequently, its expenses must be supported by the external head offices.
- Because of their nature, representation offices are not subject to corporate income tax.
- A local branch can engage in any commercial activity, except those for which the law requires a certain legal form or imposes certain conditions and/or that are exclusively reserved for Lebanese nationals and/or companies.
- For these reasons, branches are subject to corporate income tax.
5. Sales representation
- Sales representation is governed and defined by a legislative decree of 1967 under which a sales agent can negotiate sales and the procurement of services in the name of his/her principal.
- In this case, the agent may act in the name of and on behalf of the principal.
- An agreement granting representation or an exclusive concession to a person is considered to be a representation contract and may only be concluded with Lebanese nationals, unless the foreign agent is either a national of a country that offers the same mutual treatment to Lebanese nationals.
- Based on the above, these entities must meet the following conditions:
- Limited liability companies: the majority of the partners must have the Lebanese nationality, the majority of the equity must be in Lebanese possession, and the authorized signatory must be Lebanese.
- Limited companies: the shares must be registered shares, the majority of which are in the possession of Lebanese nationals, and two thirds of the members of the Board as well as the Managing Director must be Lebanese.
- Termination of the representation contract will give rise to compensation of the agent, despite any agreements to the contrary.
- Any disputes stemming from the agreement fall under the exclusive jurisdiction of the local court for the sector where the representation contract is carried out.
6. Holding companies
- A holding company is a special type of limited company that is governed by Law No. 45/83 as amended by Law No. 772 dated 11/11/2006.
Consequently, a holding company’s activities are strictly limited to the following:
- Acquisition of shares and holdings in established foreign or Lebanese limited liability companies and limited companies, or participation in their creation.
- Administration of companies in which it has shares or holdings.
- Lending to companies in which it has shares or holdings.
- Possession of patents, privileges, trademarks and any other rights and their lease to companies operating in Lebanon and abroad.
- Possession of movable and immovable property and their registration for the purpose of its activities.
- The minimum capital required to establish a holding company is 30,000,000 Lebanese pounds (approximately US$20,000).
- The Chairperson may be non-Lebanese if he/she resides abroad, and he/she may exercise this function without a work permit.
- The same is true of the holding company’s shareholders and members of the Board of Directors.
- Board and shareholders’ meetings may be held outside Lebanon.
- The company must be registered with the Trade Registry and with a special registry for holding companies.
- Holding companies enjoy tax exemptions and other tax benefits.
7. Offshore companies
- An offshore company is a type of limited company (governed by point no. 46 of the Decree-Law of 24 June 1983).
- Law No. 19 dated 5/9/2008 amended the rules for offshore companies, easing their conditions and expanding the scope of their activities.
- It eliminated the condition of having two Lebanese nationals on the company’s Executive Board, which relieves foreign investors and gives them more incentive to invest in offshore companies in Lebanon.
- In respect of the Chairperson, he/she may be a non-Lebanese residing abroad and may exercise his/her functions without a work permit.
- The company is registered with the Trade Registry and with a special registry for offshore companies.
- Offshore companies are founded in Lebanon but only operate in the free zone and/or outside Lebanese territory.
Offshore companies may engage in the following:
- Negotiation and conclusion of agreements on goods and products outside Lebanese territory or in the Lebanese free zone.
- Studies and consultations for foreign establishments.
- Use of free zone facilities to store goods imported for re-export.
- Purchase or lease of real property in Lebanon to the extent necessary to carry out the company’s operations.
According to the latest amendment, the additional activities allowed for offshore companies are as follows:
- Administration of companies and establishments outside Lebanon including the export of services and software to those organizations.
- Three or more party commercial transactions including contract negotiations and drafting, shipment of goods and invoicing for transactions occurring outside Lebanon or in the Lebanese free zone, encompassing services to store goods in the free zone prior to export.
- Exercise of activities linked to maritime shipping.
- Acquisition of stocks and shares in foreign companies and establishments and lending to those organizations in which the offshore company has more than 20% equity holdings.
- Acquisition and enjoyment of rights associated with sales agency or representation from foreign and non-resident companies and establishments.
- Opening of branches and representation offices abroad.
- Construction, investments and administration for economic projects except those prohibited by law.
- Opening of accounts and use of financial services to finance the offshore company’s activities, whether via local or foreign establishments.
- Leasing and acquisition of office and other real property in Lebanon, in connection to the offshore company’s activities.
- An offshore company cannot engage in banking, insurance or any other commercial activities in Lebanon and may not make any profits or revenue on its movable or immovable assets in Lebanon or by providing services to companies located in Lebanon with the exception of interest on its bank accounts.
Offshore companies enjoy tax exemptions because they are only subject to a flat annual tax of LBP 1,000,000 (approximately US$667).