Chapter Two: Partnerships and Corporations

Definition: A company is an agreement between two or more people who combine their
contributions to share profits, forming a legal entity.
Partnerships:
 Definition: Business association of a limited number of persons, usually not exceeding
four or five, trading under a trade name composed of their individual names.
 Formation: Requires a public instrument and registration in the commercial register.
 Corporate Personality: Partnerships, except copartner, are considered legal entities
separate from their members. They have their own rights, obligations, and independence
from partners' personal debts.
Corporations:
 Definition: Associations of funds with a larger number of people trading under a title not
necessarily showing individual names.
 Formation: Requires a public instrument and registration in the commercial register.
 Corporate Personality: Corporations are legal entities with their own existence,
interests, and rights. They can be declared bankrupt without affecting partners and can
engage in commercial activities independently.
Corporate Attributes:
 Name
 Legal domicile
 Nationality
 Capacity to own assets, contract, sue, and be sued in its own name.
Types of Partnerships and Corporations:
1. Unlimited Partnership
2. Limited Partnership or Partnership in Commendam
3. Copartnery
4. Joint Stock Company (S.A.L)
5. Limited Partnership by Shares
6. Limited Liability Company (S.A.R.L)
7. Holding Company
8. Offshore Company
Commonly Used Companies in Lebanon:
 Unlimited Partnership
 Limited Liability Company
 Joint Stock Company

Unlimited Partnership Simplified:

I. Definition: An unlimited partnership is when two or more capable individuals come together
to conduct lawful business for profit. They contribute money, resources, labor, and skills and
share both profits and losses in agreed proportions.
II. Characteristics:
1. Personal Liability: Each partner is personally responsible for the partnership's debts. If
the partnership assets aren't enough, partners' personal assets can be used to pay off debts.
2. Profit-Sharing and Loss-Bearing Agreement: Partners agree to share profits and cover
losses.
3. Merchant Status: Partners are considered merchants under the law, so only those legally
allowed to conduct business as merchants can be partners.
4. Firm Name Requirement: The partnership must operate under a business name, usually
composed of partners' names or with "and company" if not all names are included.
5. Transfer of Shares: Partners cannot transfer their shares to third parties without
unanimous consent, but they can transfer rights and benefits derived from their shares
with agreement only binding between involved parties.
6. Management Structure: By default, all partners share management responsibilities
unless otherwise specified. If a manager is appointed, their appointment or removal
typically requires unanimous consent, and they can't engage in deals where they have a
personal interest without partners' authorization.
III. Publication Formalities:
 Every partnership, including its branches, must be registered in the Commercial Register
within one month of its formation.
 Any modifications or amendments to the partnership contract, especially those
concerning the appointment and powers of the manager, must also be published through
registration in the Commercial Register.

IV. Dissolution:
Common causes of dissolution for all partnerships and companies include:
1. Expiry of the partnership's duration as specified in the contract.
2. Termination of the project.
3. Disappearance of the enterprise's object.
Additionally, the court may, upon request of one or more partners, declare dissolution or
exclude a partner failing to meet obligations.
Specific causes of dissolution for unlimited partnerships are:
1. A partner's decision to withdraw, effective after the financial year's end.
2. Declaration of a partner's incapacity or bankruptcy.
3. Absence of a partner, equivalent to death, unless partners decide to continue without
them.
 If a partner dies leaving no spouse or descendant, the partnership continues among
surviving partners. If a spouse or descendant remains, the partnership transforms into a
limited partnership with them as sleeping partners.
Limited Partnership Simplified:
A limited partnership involves two types of partners:
 Active Partners: Authorized to manage the business and are jointly and severally liable
for debts with unlimited liability.
 Sleeping Partners: Only provide funds and are liable up to the amount of their
investment.
The business operates under the name of active partners, followed by "and co." If a sleeping
partner allows their name to be used, they become liable for all losses with unlimited liability,
like active partners.
Similar to active partners in unlimited partnerships, each active partner is considered a merchant
by law. However, sleeping partners don't have this status, so those not permitted to conduct
business activities can still be sleeping partners.
Sleeping partners are forbidden from interfering in management. Doing so makes them jointly
liable for commitments resulting from interference. They can only supervise, advise, or authorize
the manager for certain actions.
The formation, publication, and dissolution of a limited partnership follow the same rules as
unlimited partnerships.

Copartnery Simplified:
A Copartnery is an agreement between two or more partners to share profits and losses arising
from their contract. Unlike other partnerships, it's private and not intended for third-party
knowledge.
Key Points:
 Agreement Flexibility: Partners freely set their rights and obligations.
 No Public Registration: Copartnery isn't registered in the Commercial Register or
known to third parties.
 Not a Legal Entity: It can't sue or be sued as an entity; partners deal only in their
personal capacity.
 No Contracts as a Copartnery: It can't enter contracts; if it acts like an entity, it's
treated as a partnership.
 Non-Commercial Nature: Not necessarily commercial; even if it deals with commerce,
it's not subject to merchant obligations or bankruptcy laws.
Joint Stock Company (S.A.L.) Simplified:
I. General Concept:
 Joint Stock Company: Formed by three or more persons pooling funds for profit.
 Capital: Can be cash or assets.
 Shareholders: Many and don't need to know each other.
 Liability: Limited to the value of shares held.
 Nature: Commercial, governed by commercial laws.
 Formation: Statute drafted by founders, registered with a notary, and published if seeking
public subscription.
 Subscription: Written commitment to buy shares.
 Nationality: Formed in Lebanon is of Lebanese nationality, with some exceptions.
II. Capital:
 Minimum: 30,000,000 L.L., divided into shares of 1000 L.L. minimum each.
 Payment: At least one-fourth upon subscription, rest as per board's decision.
 Market Value: May differ from nominal value.
 Insurance or banking companies have special rules.
III. Capital Handling:
 Contributions deposited in a bank under a special account until final formation.
 In-kind contributions evaluated by a court-appointed expert.
 Shareholders can increase or decrease capital at a special meeting upon full payment.

IV. Shares:
Shares represent portions of a company's capital and grant shareholders various rights:
1. Membership in the company.
2. Participation in management.
3. Voting rights; nominative shares may have double votes after two years of ownership.
4. Entitlement to dividends.
5. Transferability and negotiation of shares, with certain restrictions.
Types of Shares:
1. Registered or Nominative Shares: Registered in the company's shareholders book in the
shareholder's name.
2. Shares Made to the Order of a Named Shareholder: Not registered in the company's
shareholders book.
3. Shares to the Bearer: Owner's identity not necessarily known to the company.
Certain shares must remain registered in specific cases, such as unpaid nominal value, director's
shares, or shares representing in-kind contributions.
Preferential Shares: Shareholders can create preferential shares in a special meeting, granting
certain privileges like higher dividends or priority refunds.
V. Shareholders Meetings:
General Rules:
 Duly constituted meetings represent all shareholders.
 Resolutions adopted with the required majority are binding on all shareholders.
 Attendance sheet records present shareholders and their shares.
 Meetings are chaired by the board of directors' chairman.
 Discussions limited to agenda items.
 Each shareholder has votes equal to their shares.
B- Types of Meetings:
1. Constituent Meeting:
 Convened after full capital subscription.
 Agenda includes examining founders' actions, electing first directors, and
appointing the company's auditor.
2. Ordinary Meetings:
 Held annually to approve accounts, distribute dividends, elect new directors, and
appoint auditors.
 Resolutions passed by simple majority of shares present or represented.
3. Special (Extraordinary) Meetings:
 Convened for modifying the statute, like changing the company's object or form.
 Quorum must not be less than three quarters of the company’s capital.
 VI. Board of Directors:
 Composed of at least three and up to twelve members.
 Directors elected at the annual general ordinary meeting.
 Majority must be Lebanese nationals; maximum term for directors is five years.
 Directors are prohibited from managing similar companies without annual shareholder
authorization.
 The Board may appoint a General Manager under the chairman's supervision.
VII. Publication:
A- Upon Formation:
 Board registers constituent meeting minutes and company statute in the commercial
register.
 Bank releases blocked capital after registration.
B- Permanent Publication:
 Company's statute displayed in offices.
 All printed materials must include company name with "s.a.l" initials.
C- Annual Publication:
 Company's accounts and balance sheet published annually in official gazette, local daily,
and economic magazine.

VIII. Auditors:
 Shareholders appoint auditors at annual ordinary meetings.
 Auditors submit annual report and signed balance sheet at the meeting.
 Auditors can convene general meetings if the board fails to do so.

IX. Reserve Funds:

1. Statutory Reserve Fund:
 Ten percent of net profit allocated until it reaches one third of the capital.
2. Special Reserve Fund:
 Additional reserves set aside by the board as needed.
X. Dissolution:
 Liquidation follows partnership dissolution rules, but specific cases include dissolution
by shareholder resolution or upon loss of three quarters of capital.
 Shareholders can raise dissolution matters before the commercial court.

Limited Liability Company (LLC):

I. General Concept:
 An LLC combines aspects of both associations of persons and associations of funds.
 Directors are called Managers, and shares are called Parts, but no share certificates are
issued.
II. Characteristics:
A- As Association of Persons:
1. Partners' individual identities are considered.
 2. Minimum three and maximum twenty partners, extendable to thirty including heirs.
3. Public subscription is forbidden.
4. Company cannot issue shares.
5. Trade name is often anonymous, followed by "and Co.", always followed by "S.A.R.L".
6. Parts are not negotiable without 75% partner approval.
B- As Association of Funds:
1. Capital contributed in cash or kind; services not considered payment.
2. Minimum capital LL 5,000,000, fully paid and displayed on company materials.
3. Partners' liability limited to owned Parts.
4. Partner bankruptcy or incapacity doesn't dissolve the company.
5. LLC is commercial by form regardless of its object.
6. Legal reserve must be 50% of capital.
III. Formation:
 Formed by partners' mutual consent through a memorandum of association; no
constituent meeting required.
 Cannot include insurance, banking, or financing operations in its object.
 Partners can be juristic persons.
 Capital fully deposited in an approved bank under a special account until final formation
after registration in the Commercial Register.
 All partners can be foreigners, but foreign managers need work permits.
IV. Partners Meetings:
A- Ordinary Partners Meetings:
 Convened annually within six months of the financial year closure.
 Can be specially convened for urgent matters like revoking or appointing managers, or
appointing auditors.
 Typically convened by the manager; if not, auditors or partners representing 25 to 50% of
capital can convene.
 Convening can be through publication in newspapers or registered letters.
 Purpose often for approving accounts.
 Resolutions adopted by a simple majority of parts present or represented.
B- Special Extraordinary Partners Meetings:
 Convened for modifying the memorandum of association, increasing or decreasing
capital, transformation, nationality change, or increased partner obligations.
 Capital changes require a quorum of at least ¾ of the capital.
V. Management:
 Similar rules as for managing an unlimited company.
 Partner-managers don't acquire merchant status.
 Management can be conferred to one or more persons.
 Managers appointed by the memorandum of association or separate resolution;
registration required.
 Managers can be revoked by partners' resolution.
 Managers prohibited from dealing with the company in which they have an interest
without express authorization.
 Subject to same liabilities and penalties for mismanagement as a joint-stock company's
board of directors.
VI. Transformation:
 Can be converted into various types of partnerships or joint-stock companies.
 Mandatory transformation required if the number of partners exceeds thirty within two
years or if capital falls below LL 5,000,000.
VII. Dissolution:
 Dissolution can occur due to expiry of duration, termination of project, failure to
transform when necessary, or unanimous partners' resolution.
 Unlike unlimited partnerships, bankruptcy of one partner doesn't dissolve the LLC as
long as there are at least three other partners.
 Death of a partner leads to replacement by heirs by law.

The Holding Company:

 Introduced in Lebanon in 1983 as a form of Joint Stock Company with tax advantages.
 Activities limited to acquiring shares in domestic or foreign companies, managing those
companies, giving loans, acquiring intangible assets, and acquiring movables or real
estate for its exclusive use.
  Prohibited from engaging in activities not listed.
 Restricted from holding more than 40% of the capital of more than two companies in the
same field of business.
 Name must include "Holding" in all documents.
 Subject to Joint Stock Company rules with exceptions regarding capital currency,
nationality of board members, registered office location, second auditor, and special
registration.
Tax Provisions for Holding Company:
 Exempt from taxes on revenues for profits and dividends.
 Still subject to taxes on interest from loans to Lebanese companies, fees from affiliated
companies, leasing revenues, and an annual fixed tax rate based on capital and reserves.
The Off-Shore Company:
 Introduced in Lebanon in 1983 as a type of Joint Stock Company with favorable tax
treatment.
 Engages in activities such as negotiating agreements abroad, managing foreign
companies, providing services outside Lebanon, trade transactions, maritime
transportation, and borrowing money.
 Prohibited from engaging in industries, banking, insurance, or any business within
Lebanese territory.
 Must adopt the legal form of a Joint-Stock Company but with specific rules regarding
board member nationality, work permits, auditors, employee work permits, and capital
currency.
 Must be entered in the Commercial Register, with a special register kept with the
Registrar of the Court in Beirut.

Tax Provisions for Off-Shore Company:

 Exempt from all taxation for services and activities outside Lebanon, paying only a
yearly lump sum.
 Contracts signed in Lebanon related to operations outside Lebanon exempt from stamp
duties.
 Dividends distributed exempt from tax on revenues of movable assets.
 Salaries and wages subject to income tax, with part of foreign employees' salary
considered entertainment expenses exempt from taxes.