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Business Forms and Structures

Companies Law

General

The Lebanese Code of Commerce provides for the following types of business associations: unlimited partnerships, limited partnerships, co-partnerships, joint stock companies, limited partnerships by shares, limited liability companies and companies with variable capital.

The most common forms are the joint stock company and limited liability company. Foreign investors may also be interested establishing branch offices of foreign companies.

Joint Stock Company

A joint stock company is an association of funds contributed to by three or more persons. A joint stock company should have a minimum authorized capital of Lú 30 million. Ownership of shares in the company entitles the shareholder to membership in the company, a right to participate in management and a right to vote. These shares are negotiable or transferable. The liability of each shareholder is limited to the value of the shares held. The Board of Directors must set aside 10 percent of net profits to create a statutory reserve fund until such time as this reserve fund becomes equivalent to one-third of the capital of the company. A joint stock company must appoint an auditor.

Lebanese law does not provide for direct limitations on foreign interest in joint stock companies. The only indirect limitation is that the Board of Directors must have at least three Lebanese members out of the maximum twelve allowed. Another limitation is confined to joint stock companies whose object is the acquisition of and trading in real estate in Lebanon. In this case, 50 percent of the capital must be held by Lebanese nationals.

Limited Liability Company

A limited liability company has between three to twenty members. It cannot issue shares, debentures or bonds, nor can it invite the public to subscribe for ownership in the company. The trade name is usually anonymous, but it must be followed by the initials SARL and may include the names of the partners. The legal incapacity or bankruptcy of a member does not entail dissolution of the company. Shares in a limited liability company are not negotiable and cannot be transferred to third parties without the prior approval of members representing at least 75 percent of the capital. The capital must be fully paid up and must appear on the letterhead or any other printed documentation of the limited liability company. The liability of each partner is limited to the value of shares held. The legal reserve of such a company must be equal to 50 percent of the capital. The capital must be fully deposited in a bank under the company's name.

Management may be entrusted to one or more partners, and a manager cannot conclude on the company's behalf any deal in which he has a direct or indirect interest, unless prior authorization is granted. Limited liability companies may not pursue the objects of banking, financial operation and insurance. The company must be formed with the mutual consent of the members embodied in a memorandum of association.

Branch Offices

Local branch offices are used frequently by foreign companies doing business in Lebanon. To set up a branch office, the foreign company's Board of Directors must execute a power of attorney in favor of a person residing in Lebanon granting authority to register the company in Lebanon, to represent it in court and to sign documents on its behalf. The representative must be given a copy of the company's articles of association or incorporation, and a copy of a resolution of the company's Board of Directors authorizing the opening of the branch, nominating its representative, and issuing the power of attorney.

Commercial Representation

Commercial representation is governed by a Legislative Decree of 1967 according to which a commercial agent may negotiate for the conclusion of sales or the supply of services on behalf of his principal. The agent can act, according to the decree, in the name of and for the accounts of the principal.

An agreement granting exclusive representation or distributorship to a person is considered an agency agreement and may be granted only to Lebanese nationals, unless the foreign agent is a national of a country that assures reciprocal treatment to Lebanese nationals.

The decree stated some mandatory provisions, based on public policy reasoning, dealing with the termination of agency agreement and the consequences thereof. For instance, the termination of the agency agreement entitles the agent to compensations, notwithstanding any agreement to the contrary.

The Decree states, inter alia, that exclusive jurisdiction regarding any dispute arising from the agreement is given to the local court in the area where the agency agreement is carried out.


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