Communiqué: New Lebanese code of commerce

A Clearer Way Forward

Sep. 7, 2019

Eptalex - Aziz Torbey Law Firm outlines the main changes to the code of commerce in Lebanon, which seeks to encourage a more conducive business environment.

On March 8, parliament amended the longstanding Lebanese Code of Commerce (CC) of 1942. This amendment was considered a step forward to enhance foreign investments and transparency and build a conducive business environment in the country.

First and foremost, the criteria to form a limited liability company (SARL) has long been based on decree N. 35/ 1967, which required a minimum of three shareholders. In reality, however, many companies abided by this regulation by giving one main shareholder the largest share while allocating only one share to the two other shareholders. The latter is one of the many lacunas the new CC tackles by offering the possibility of establishing a SARL with only one shareholder.

As for joint stock companies (SAL), the law introduced flexible changes. The old CC mandated that half of the members of the board of directors (BOD) must be Lebanese nationals; the new CC reduces this requirement to one-third. The CEO can now be a foreigner and does not need a work permit. Second, the updated CC has developed and facilitated the work within and outside companies. Aside from introducing digital correspondence to the general assemblies and BOD meetings, the amended law promotes FDI by endorsing shareholders' use of electronic means to perform many official procedures and formalities. Accordingly, two years following the entry into force of the new code, an online mechanism determined by the Minister of Justice will be created for the sole purpose of monitoring and simplifying a company's online registration process at the Commercial Register.

Additionally, over the past few years, every company was entitled to obtain clearance from the National Social Security Fund (NNSF) valid for a year in order to register anything at the Commercial Register. Following the new CC, members of the BOD are exempted from this procedure. On another note, any notary public in Lebanon can now notarize the company's regulation, not just the one located at the same area as the company's head office. Thirdly, in terms of transparency and responsibility, one stride forward is adding new members, or “independent administrators," to the BOD that are not shareholders. Their role is crucial in terms of contributing experience and know-how to the benefit of the company. Moreover, the 2019 Code has set a clear separation between the usufruct rights and the bare ownership of one share in a company. This amendment's main purpose is to clarify the different rights and obligations falling upon each right holder and set explicit limits between each other and between them and the company.

Furthermore, on the basis of separation of power, there is a clear differentiation between the positions of a chairman and a general manager; the latter is entitled to report to the chairman because he represents the interest of shareholders. In addition, while the liability of the sole shareholder is only limited to the company's capital, Article 167 increased the circle of people held responsible in the event of bankruptcy to include: the BoD, the chairman, and all other people involved in the management of the company, such as its auditors. Keeping in mind the auditors' capacity, especially in terms of transparency and fighting corporate corruption, the 2019 CC has amplified their liability by holding them accountable until proven otherwise. Nevertheless, it has given companies the choice on whether or not to appoint complementary auditors.

The fresh CC has opened many doors and perspectives for businesses in Lebanon, especially by addressing subjects such as M&As. The law defined significantly both mergers and acquisitions and their respective terms and implications toward the company, its partners, debtors, and creditors.

All in all, this reform is much needed for the advancement of the country as a whole. It has filled gaps wherever ambiguity and confusion dominated and established a better structure starting from the formation of an entity to running its daily business.