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Picks up where Part 1 (Formation, Documents, and Securities) left off: the société anonyme libanaise is now constituted, its shares are issued, its bonds are outstanding. This second SAL post in the Practical Guide to Lebanese Commercial Law covers the second phase of the SAL’s life — how it is governed, how its decisions are taken, how it is supervised from within, and how it ends, whether by dissolution and liquidation, by being absorbed into another company through merger, or by splitting itself into several companies through demerger.

Introduction

Scope. Articles 144 to 225 of the Lebanese Code of Commerce (82 articles, four of which — 210, 211, 212, and 213 — were repealed by Law No. 126 of 29 March 2019, their content having migrated to the newly added Book IX), together with the 30 articles of Book IX governing mergers and demergers (Articles 210 to 213 bis 26). Five levels of treatment:

1. The board of directors — composition, terms of office, powers, relations with the company, civil and criminal liability (Articles 144–171).
2. Auditors — appointment, scope of audit, reporting, independence, liability (Articles 172–178).
3. Shareholders’ general assemblies — ordinary and extraordinary, quorum, majority, capital increases and reductions (Articles 179–215).
4. Dissolution and liquidation (Articles 216–225).
5. Mergers and demergers — Book IX (Articles 210 to 213 bis 26).

Amendment chronology. The SAL operations chapter has been amended in five legislative waves spanning 77 years.

• Decree-Law No. 304 of 24 December 1942 — original enactment of the Code of Commerce, including Articles 144 to 225 in their founding form.
• Law of 23 November 1948 — early post-independence consolidation that touched the dissolution chapter (Article 216) and fixed the baseline that survived for two decades.
• Decree No. 9798 of 4 May 1968 — restructured the board regime (the floor of three and ceiling of twelve members in Article 144 dates from this decree) and the constitutive-assembly quorum cascade (Articles 193–194).
• Decree-Law No. 54 of 16 June 1977 — amended Article 153 (chairmanship and general management) and Article 201 (powers of the extraordinary general assembly).
• Article 14 of Law No. 308 of 3 April 2001 — amended Article 185 (right of every shareholder to participate in voting) to accommodate the preferred shares without voting rights introduced by the same statute (treated in Part 1).
• Law No. 126 of 29 March 2019 — the largest legislative intervention in this Part of the Code, touching 57 articles within scope — 53 substantive amendments and four outright repeals (Articles 210 to 213) whose content was relocated to the newly added Book IX on mergers and demergers.

Book IX itself has not been amended since its introduction.

I. The Board of Directors (Articles 144–171)

1. Composition of the board and the one-third Lebanese threshold (Article 144)

Management of the SAL is entrusted to a board of at least three and at most twelve members, subject to any special rules that may apply to particular SALs. The board elects one of its members to act as chairman. At least one third of the board’s members must be Lebanese nationals. The chairman, where he is a non-Lebanese non-resident, is exempt from the requirement to obtain a Lebanese work permit (Article 144).

Practitioner note. Before Law No. 126 of 2019, the board had to have a majority of Lebanese members. The current floor is one third. The numerical range (3 to 12) is unchanged since the 1968 restructuring.

The one-third board threshold is independent of two other threshold rules that share its vocabulary but not its object: the general capital-composition rule of Article 43 (treated in Part 2 of the series), and the public-service-company threshold of Article 78 governing the capital of SALs whose object is the operation of a public service or a public interest activity (treated in Part 1). The Article 144 rule attaches to the board’s composition alone, irrespective of the composition of the share capital and irrespective of the company’s object. The three rules cumulate in SALs operating in the public-service domain and apply independently elsewhere.

2. Fees of board members (Article 145)

Board members receive fees — annual lump sum, per-session fee, percentage of net profits, or a combination — set by the bylaws or the general assembly. Where the fee is calculated as a percentage of net profits, the profit base excludes income from the securities portfolio unless an annual special resolution of the general assembly provides otherwise (Article 145).

A board member is not in principle an employee of the company. He benefits from the protections of the Labour Code only where he was an employee of the company for at least two years before joining the board, by reference to the final paragraph of Article 153.

3. Election of members and filling of vacancies (Article 146)

The ordinary general assembly elects board members; the bylaws may name the first members. Where a single share is subject to a usufruct and a bare ownership, only the bare owner is eligible for board membership, unless the parties agree otherwise under Article 116 (treated in Part 1). Where a single share is held by joint owners, the joint owners designate a single representative eligible for board membership, in application of the same Article 116 (Article 146).

If the number of serving members falls, by reason of death, resignation, or any other cause, below half of the minimum number set by the bylaws or below three, the remaining members must convene the general assembly within at most two months to fill the vacant seats.

4. Directors need not be shareholders (Article 147)

The ordinary general assembly elects board members from among the shareholders or from non-shareholders (Article 147).

Practitioner note. Before Law No. 126 of 2019, the SAL board member had to be a shareholder holding a minimum number of shares fixed by the company. The member’s shares had to be nominative, were non-transferable, and were deposited with the company as security for his administrative liability. The 2019 statute removed all of this: board membership no longer presupposes share ownership.

5. Criminal-record and bankruptcy bar to membership (Article 148)

No person may sit on the board of an SAL if he has been declared bankrupt and has not had his rights restored for at least ten years, or if he has been sentenced in Lebanon or abroad less than ten years ago for committing or attempting to commit a felony or misdemeanour. The same conditions apply to the natural-person representatives of legal-entity board members (Article 148).

Practitioner note. The pre-2019 text enumerated specific disqualifying offences (forgery, theft, fraud, breach of trust, offences treated as fraud, embezzlement, bad-faith dishonoured cheques, harm to the State’s financial standing, concealment). The current text replaces the enumeration with the general formula “felony or misdemeanour” — a broader bar, not a narrower one.

6. Term of office (Article 149)

Members named in the bylaws hold office for at most five years; members elected by the general assembly hold office for at most three years. Renewal is permitted. The bylaws may provide for partial renewal of the board (Article 149).

7. Dismissal without cause (Articles 150 and 151)

Board members are dismissible without cause at any time, and any provision to the contrary is of no effect (Article 150). The general assembly need give no reason for dismissing a director; neither the director nor the company may contract out of this rule.

Where dismissal is decided by the general assembly without having been placed on the agenda, the decision takes effect only after confirmation by a new general assembly convened within two months by the auditors, one of whom presides (Article 151).

8. Publication of changes in board composition (Article 152)

Every change in board composition is published by filing the minutes with the commercial register, by act of the board, and notice of any resignation is recorded in the same register. No other supporting document — official or otherwise — may be required for the filing or the recording (Article 152).

9. Chairmanship and general management: unified or separated (Article 153)

The default position is unified. Management of the company is entrusted to a chairman-general manager, elected by the board from among its members who are natural persons. The bylaws may, however, provide for separation between the chairmanship of the board and the general management of the company. Where the bylaws so provide, the board appoints a general manager — a natural person, drawn from among the shareholders or from non-shareholders — distinct from the chairman.

The deputy general manager is appointed in either case from outside the board, from shareholders or non-shareholders, on the personal responsibility of the person who proposed the appointment: the chairman-general manager in the unified model, the general manager alone in the separated model (Article 153).

Where the bylaws elect separation, the chairman holds general supervisory authority over the conduct of business without intervening in day-to-day operations; his guidance to the general manager is not binding on the latter. Representation of the company vis-à-vis third parties and day-to-day management lie exclusively with the general manager (Article 157).

Practitioner note. Until Law No. 126 of 2019 introduced the option to separate, the unified chairman-general manager model was the only one available in the Lebanese SAL. Companies whose bylaws were drafted before 2019 continue to operate under the unified default unless the bylaws are amended to elect separation.

10. Multiple-mandate caps (Article 154)

A natural person may not hold:

• the chairmanship of the board of more than six companies in Lebanon;
• the position of general manager or deputy general manager in more than three companies whose head office is in Lebanon;
• board membership in more than eight companies whose head office is in Lebanon (Article 154).

Holding the chairmanship or membership of the boards of distinct insurance companies operating under a single trade name counts as a single chairmanship or membership.

Breach is sanctioned in graduated steps: notice from any interested person, two months’ grace period, deemed resignation of the offender at the expiry of the grace period, and the possibility of a court action to annul the board decisions taken in his presence. Neither the offender nor the company may invoke this nullity against third parties. The offender must repay to the company all fees and remuneration received from the date of the breach.

Practitioner note. Before Law No. 126 of 2019, the caps were lower (four chairmanships, six memberships) and were halved for persons over seventy. The 2019 text raised the caps to 6/3/8 and removed the age restriction.

11. Trader status of chairman and general manager (Article 155)

Neither the chairman nor the general manager is treated as a trader in his personal capacity, except where the company is declared bankrupt as a result of fraud or serious management errors; the court may then deprive them, or either of them, of the rights that the law attaches to bankruptcy. Where the chairmanship and the general management are separated, this liability is borne by the person to whom each function is entrusted, in proportion to what is entrusted (Article 155).

12. Board quorum and remote attendance (Article 156)

The board’s quorum is at least half of its members present or represented; a member may represent only one other member. The bylaws may admit remote attendance by audiovisual communication or by other technical means whose conditions are set by decisions of the Minister of Justice, on condition that identity and the integrity of the communication are guaranteed (Article 156).

Two limits:

• Remote attendance is prohibited in the board sessions that prepare and approve the annual financial statements and the related annual reports under Article 101 — the substantive sessions that require material discussion.
• The content of remote communications must be recorded in every board session in which remote attendance occurs, and the recordings form an integral part of the minutes and are kept with them.

13. Board powers and delegation (Article 157)

The board has the broadest powers to execute the resolutions of the general assembly and to take all actions required for the ordinary conduct of the company’s business that do not fall within the scope of day-to-day management. The board may delegate certain of its powers to its chairman-general manager or to the general manager, for a short and limited period, on condition that the delegation is published in the commercial register (Article 157).

Day-to-day management itself is allocated by reference to whether the chairmanship and general management have been separated. In the unified model, the chairman-general manager holds all powers of representation of the company vis-à-vis third parties, of execution of board resolutions, and of conduct of day-to-day business. In the separated model, the chairman exercises general supervisory authority over the conduct of business without intervening in day-to-day operations, and his guidance to the general manager is not binding; representation of the company vis-à-vis third parties and the conduct of day-to-day business lie exclusively with the general manager.

14. Related-party transactions (Article 158)

Every contract, agreement, or undertaking that the company intends to enter into with the following persons requires prior authorisation by the board of directors:

• the chairman and members of the board;
• the general manager and the deputy general manager;
• every shareholder who holds, directly or indirectly, voting rights exceeding five per cent (5%) of the company’s share capital.

The person concerned may not take part in the vote on the authorisation that relates to him, and his votes are not counted in the quorum.

The same authorisation requirement covers every agreement between the company and another company where the person concerned is a partner holding voting rights exceeding 5%, a general partner, a representative, a manager, or a board member of the other company.

The person concerned must inform the board immediately, in writing, and in detail as soon as one of the situations arises. The board reports the authorised contracts to the general assembly for ratification and must notify the auditors of the authorised contracts within fifteen days of the authorisation decision.

Subject to the banking laws, the persons referred to above are prohibited from obtaining from the company any loan, credit facility, guarantee, or surety in favour of third parties (Article 158).

Practitioner note. Two changes introduced by Law No. 126 of 2019 are load-bearing in practice. First, the threshold for the shareholder caught by the authorisation requirement was lowered to 5% — the pre-2019 text did not cover the large shareholder at all; it covered only board members. Second, the fifteen-day deadline for notification to the auditors did not exist in the pre-2019 text.

15. Non-competition and influence over market prices (Articles 159 and 160)

The chairman, the board members, the general manager, and the deputy general manager may not take part in the management of a company similar in its object or in its activity to their own company, unless they obtain prior authorisation from the ordinary general assembly, renewed each year (Article 159).

The same persons are absolutely prohibited from holding any interest in any company, association, union, or other group engaged in operations intended to influence prices on the stock exchange affecting their company’s securities (Article 160).

16. Interim and annual financial statements (Articles 161–163)

The board prepares interim financial statements at the end of the first six months of the financial year, and the financial statements provided for in Article 101 at the end of the year (Article 161).

The financial statements must be clear; any change in the method of their preparation or presentation must be disclosed in the notes accompanying the audited financial statements (Article 162).

The board prepares an annual report on the state of the company and its activity during the financial year, made available to the shareholders at least fifteen days before the general assembly. The report must cover the state of the company, the results of the activity, the progress achieved, the difficulties faced, the expected developments, the risks, and the significant operations between the year-end and the date of the assembly (Article 163).

17. Calling the general assembly and the legal reserve (Articles 164 and 165)

The board convenes the general assembly (Article 164).

The board must constitute a legal reserve by setting aside ten per cent of net profits after deduction of prior losses, until the reserve equals one third of the share capital (Article 165).

18. Civil liability and right of action (Articles 166–171)

Board members and the general manager are liable, including to third parties, for all acts of fraud and for every breach of the law and the company’s bylaws. The right of action of the injured party is an individual action that cannot be stayed by any acquittance voted by the general assembly (Article 166).

In their relations with the shareholders, the persons referred to above are liable for administrative fault. They are not in principle liable to third parties for administrative fault — except where the company is bankrupt and shows a shortfall in assets: the court may then, at the request of the trustee in bankruptcy, of the public prosecutor, or of its own motion, hold that the company’s debts are to be borne by the members of the board and the general manager, or by any other person entrusted with management or supervision, including the auditors. The defendants escape this liability only by proving that they have managed and supervised the company’s business with the care of the diligent and effective professional (Article 167).

Practitioner note. The fault standard under Article 167 was changed by Law No. 126 of 2019 from “the care of the salaried agent” to “the care of the diligent and effective professional“. The shift is from a contract-of-agency standard (calibrated to the agent’s remuneration) to a professional-liability standard (an objective standard independent of remuneration).

Where the chairmanship and general management are separated, the chairman is liable only for breach of the law or of the bylaws — his supervisory role limits his exposure; day-to-day administrative liability falls on the general manager (Article 167, final paragraph).

The right to sue the chairman, the board members, and the general manager belongs to the company. Where the company does not act, each shareholder may sue on the company’s behalf in proportion to his interest in it — the action sociale ut singuli of Lebanese law (Article 168).

Acquittance presupposes the production of the company’s accounts and the auditors’ report, and covers only those administrative matters of which the general assembly was made aware (Article 169).

Liability is individual where it attaches to a single member, and joint and several where it attaches to several members, unless a member dissented from the decision and recorded his dissent in the minutes. The ultimate apportionment of liability among those liable is made according to each one’s share in the fault committed (Article 170).

The action in liability — whether brought by a shareholder or by a third party — is time-barred after five years from the date of the general assembly at which the members rendered their accounts (Article 171).

II. Auditors (Articles 172–178)

1. Appointment and renewal of mandate (Article 172)

The constitutive assembly, and then each subsequent ordinary general assembly, appoints one or several auditors. The mandate runs for one year only; it may be renewed for at most five consecutive years (Article 172).

Practitioner note. The five-year cap on consecutive renewals is new in 2019. The pre-2019 text permitted renewal without a ceiling.

2. Additional auditor on the application of a 10% minority (Article 173)

A shareholder, or a group of shareholders, representing at least ten per cent (10%) of the share capital may apply to the president of the Court of First Instance in whose jurisdiction the company’s head office is located for the appointment of an additional auditor, chosen from among the accounting experts attached to the court. The additional auditor has the same powers as the auditors elected by the assembly, and his fees do not exceed those allowed to them (Article 173).

Practitioner note. Before Law No. 126 of 2019, the additional auditor was a routine fixture: he was appointed by the court on the application of the board itself within the two months following incorporation and again each year after the ordinary assembly. The 2019 text converts the additional auditor from a routine annual appointment into a minority-protection mechanism triggered by shareholders holding at least 10% of the capital.

3. Scope of the audit and obligation to provide documents (Article 174)

The auditors audit the financial statements prepared by the board under Article 101 in order to give their opinion on whether the statements present fairly; their report must include a reference to any instance of the company’s non-compliance with its bylaws or with the laws and regulations applicable to it. The board and the general manager must provide the auditors at any time during the year with all information, documents, instruments, and accounting records needed to complete the audit. The financial statements are made available to the auditors at least sixty days before the general assembly (Article 174).

4. The audit report and approval of the financial statements (Article 175)

The auditors submit to the general assembly their report on the financial statements for approval. If they do not submit the report, the assembly’s decision approving the financial statements is null (Article 175).

5. Calling the assembly where the board fails to do so (Article 176)

The auditors must convene the general assembly whenever the board fails to do so in the cases set by the law or by the bylaws; they may also convene it whenever they consider it useful; and they must convene it on the application of a group of shareholders representing one fifth of the share capital (Article 176).

6. Independence (Article 177)

The auditors are prohibited from holding any direct or indirect interest in a group whose purpose is to influence the prices of any class of the company’s securities. They are also prohibited from holding any interest outside the scope of their mandate, in particular through consulting contracts of any nature, with the company, with a legal-person shareholder, or with a shareholder (or group of shareholders) holding ten per cent or more of the share capital (Article 177).

Practitioner note. The express bar on consulting contracts with the company or with significant shareholders was added in 2019. The pre-2019 text covered only the narrower case of an interest in a group seeking to influence stock-exchange prices.

7. Liability of auditors (Article 178)

The auditors are liable, individually or jointly and severally, including to third parties, for every fault committed in the audit. The action in liability is time-barred after five years (Article 178).

III. Shareholders’ General Assemblies (Articles 179–215)

The general assembly is the supreme authority in the SAL and the source of all other powers within it. It declares the company validly constituted, appoints and dismisses the board members and the auditors, approves the acts of management and the company’s accounts, and decides on mergers, dissolution, and conversion of corporate form.

1. Types of assembly and right to convene (Articles 179 and 180)

Three types: the constitutive assembly, the ordinary assemblies, and the extraordinary assemblies (Article 179).

The right to convene the ordinary and extraordinary assemblies belongs to the board; the right to convene the constitutive assembly belongs to the founders. The auditors may substitute themselves for the board in the cases set in Article 176 (Article 180).

2. Proxy and remote attendance (Articles 181 and 182)

A shareholder who cannot attend the assembly may appoint a representative. The representative must himself be a shareholder, unless the bylaws permit the appointment of a non-shareholder representative. The bylaws may also, for the purposes of the quorum and majority calculations, treat shareholders who participate by audiovisual communication or other technical means whose conditions are set by decisions of the Minister of Justice as present, on condition that identity and the integrity of the communication are guaranteed. The content of the remote communications is recorded in every assembly session in which remote attendance occurs, and the recordings form an integral part of the minutes (Article 181).

An attendance sheet is drawn up listing the names of those present, those represented, and those participating by means of remote communication where applicable, together with the number of shares and votes. It is kept at the company’s head office and made available to any person proving shareholder status (Article 182).

3. The bureau and the agenda (Articles 183 and 184)

The assembly has a bureau comprising at least a chairman and a secretary. The bureau members must be present in person — they may not be represented and may not attend remotely, in contrast to the ordinary shareholders (Article 183).

The assembly may discuss only the matters on the agenda; unforeseen and urgent matters arising during the meeting are excepted (Article 184).

4. The shareholder’s right to vote and the number of votes per shareholder (Articles 185 and 186)

Every shareholder, regardless of the class of shares he holds, may take part in voting, even where he holds only a provisional certificate, subject to the regime applicable to preferred shares without voting rights introduced by Article 14 of Law No. 308 of 3 April 2001 (Article 185).

Subject to the special rules applicable to nominative shares under Article 117 (treated in Part 1), each shareholder holds a number of votes equal to the number of shares he holds or represents, without ceiling — unless the bylaws expressly provide for a ceiling, in which case the ceiling must apply uniformly to all shares regardless of their class (Article 186).

Practitioner note. The system of double voting rights for long-held nominative shares (which gave the holder of nominative shares held for at least two years two votes per share instead of one) has been abolished. The cross-reference is now to Article 117 in its current form (treated in Part 1 in connection with the nominative-only share regime introduced by Law No. 75 of 2016).

5. Conflict-of-interest voting (Articles 187 and 188)

A shareholder may not vote, either for himself or for those he represents, where the matter concerns a benefit to be granted to him or a dispute between him and the company on which the assembly is to decide (Article 187).

The bondholders’ representatives attending the assembly have no voting rights in the deliberations (Article 188).

6. Secret ballot (Article 189)

Where a single shareholder requests it, voting by secret ballot becomes mandatory in all matters of a personal character, such as the dismissal of board members or the imputation of liability to them (Article 189).

7. Adjournment (Article 190)

Where the shareholders present consider that the information provided to them on the matters submitted is insufficient, the meeting is adjourned for at least eight and at most fifteen days, on the application of one quarter of the assembly’s members (Article 190).

8. Binding effect of decisions taken in due form (Articles 191 and 192)

The bureau draws up and signs the minutes of the meeting (Article 191).

Decisions taken in due form, observing the quorum and majority required for each assembly, free of fraud and abuse of authority, bind all shareholders, including those who were absent and those who dissented (Article 192).

9. Constitutive assembly: quorum and majority (Articles 193–195)

A three-tier quorum cascade applies to the constitutive assembly:

• First call: at least two thirds of the share capital.
• Second call (where the first fails, after a fresh notice published twice with a one-week interval in the Official Gazette, in an economic newspaper, and in a local daily): at least one half of the share capital.
• Third call (where the second fails): at least one third of the share capital (Article 193).

In the matters relating to the verification of contributions in kind, the quorum is calculated by reference to the shares subscribed for or held by the shareholders excluding the contributors in kind — those contributors do not vote on the valuation of their own contributions (Article 194).

Decisions are taken by a two-thirds majority of the votes of the shareholders present or represented; the contributors in kind do not participate in decisions relating to the verification of their contributions (Article 195).

10. The annual ordinary assembly (Articles 196–199)

The ordinary assembly is held each year after the close of the financial year to rule on the directors’ accounts, the distribution of dividends, the appointment of new auditors, and the appointment of board members when their mandate expires. It may also be held during the financial year in unforeseen circumstances, on condition that it does not seek to amend the bylaws (Article 196).

Every shareholder and bondholder may consult, at the company’s head office or through an electronic channel authorised by the company, the documents listed in points 1 to 5 of Article 101 and the list of shareholders. Copies may be taken or requested at the consulting party’s expense; the company may charge only the fees set by the tariff of the Minister of Economy (Article 197).

The ordinary assembly must comprise shareholders representing one third of the share capital; if the quorum is not met, a second assembly is held and its decisions are valid whatever portion of the share capital is represented (Article 198).

Decisions are taken by the absolute majority of the votes attached to the shares of the shareholders present, represented, or participating remotely (Article 199).

11. The extraordinary assembly: object, quorum, majority (Articles 200–204)

The extraordinary assembly deliberates on amendments to the bylaws (Article 200).

Subject to Article 80 (administrative authorisation, treated in Part 1) and to the rules set out below, the extraordinary assembly may amend the bylaws in all their provisions, on condition that it does not change the nationality of the company, does not increase the obligations of shareholders, and does not affect the rights of third parties — three mandatory limits on its powers (Article 201).

For decisions to change the company’s object or its corporate form, the quorum is always at least three quarters of the share capital — the highest quorum required by Lebanese company law (Article 202).

For other amendments, the quorum follows the same cascade as for the constitutive assembly: two thirds at the first call, one half at the second, one third at the third (Article 203).

Decisions are taken by a two-thirds majority of the votes attached to the shares of the shareholders present, represented, or participating remotely (Article 204).

12. Capital increase and capital reduction (Articles 205–209)

A capital increase requires the full payment of the existing capital under Article 119, on pain of nullity of the capital increase. Where a share is subject to a usufruct and a bare ownership, the bare owner is entitled to subscribe to the capital increase (subject to any agreement to the contrary under Article 116) (Article 205).

The rules for the formation of the SAL apply to the new shares issued; the sanctions in respect of nullity, fines, and the liability of the chairman, board members, general manager, deputy general manager, shareholders whose contributions have not been duly approved, auditors, and experts apply mutatis mutandis (Article 206).

Where the new shares are subscribed by persons other than the existing shareholders, notwithstanding the preferential subscription right of the latter, and the company has reserves, the new shares are issued at a price above their nominal value, the excess corresponding to the subscriber’s participation in the reserves (Article 207).

Capital reduction must preserve the rights of third parties. The decision is enforceable only after publication in the Official Gazette and the expiry of a three-month creditor-opposition period without opposition; where opposition is filed, the reduction is suspended until the court rules on whether it would prejudice the rights of third parties (Article 208).

Board members are liable for any unlawful capital reduction effected through the company’s purchase of its own shares with funds drawn from the share capital or the legal reserve (Article 209).

13. The four repealed articles (210–213)

Articles 210, 211, 212, and 213 were repealed in their entirety by Law No. 126 of 29 March 2019. They had set out a rudimentary merger regime which the 2019 statute relocated to the newly added Book IX and replaced with a complete 30-article regime covering both mergers and demergers (treated in Section V below). The numbers 210 to 213 are preserved as repealed in their historical position for legislative tracking; their content is dead letter.

14. Nullity of assembly decisions and penalties for fraudulent majorities (Articles 214 and 215)

Where a decision of the general assembly is taken in breach of the procedural conditions governing the deliberations, the decision is null whenever the breach has actually distorted the result reached. Any person with standing and interest may invoke this nullity before the competent court. The nullity is cured by regularisation of the deliberations or by the expiry of one year from the date of the assembly with respect to shareholders, and from the date of the publication of the decision in the commercial register with respect to third parties (Article 214).

Persons who fabricate or attempt to fabricate by fraudulent means a false majority in a general assembly of shareholders or of bondholders — in particular by presenting themselves as the holders of securities owned by persons unable to vote, by inducing others to vote in a particular way or to abstain by promising special advantages, or by using bought voting power or any other unlawful means — incur the penalties for fraud, together with liability for damages. Secondary participants incur the same penalties (Article 215).

IV. Dissolution and Liquidation (Articles 216–225)

Dissolution of the SAL differs from dissolution of partnerships (treated in Part 2) in two respects: it is not triggered by the death or personal bankruptcy of a shareholder; and it proceeds from either a collective resolution of the extraordinary general assembly or a court judgment.

1. Grounds for dissolution (Article 216)

The SAL is dissolved by any of:

1. Expiry of its term.
2. Completion of the project for which it was formed.
3. Impossibility of completing the project.
4. The will of the shareholders expressed in a general assembly satisfying the conditions set in Articles 202 and 204 (the three-quarters quorum for decisions on corporate form, two-thirds majority of votes for other decisions).
5. Any case provided for in the bylaws.

Where the company has lost three quarters of its share capital, the board must convene an extraordinary general assembly to decide whether the situation requires early dissolution, capital reduction, or other appropriate measures (Article 216).

2. Recourse to the court where management or assembly fails (Article 217)

Where the board fails to convene the assembly, where the assembly cannot be constituted for want of quorum, or where the assembly refuses to dissolve the company despite the existence of a ground for dissolution, every shareholder may apply to the competent court for the appropriate measure or for dissolution of the company (Article 217).

The court’s response is therefore not limited to dissolution as a binary outcome; it may extend to the appointment of an interim judicial administrator or other corrective measure short of outright dissolution. The article operates as a minority-protection mechanism against a dominated assembly.

3. Publication of the dissolution decision (Article 218)

The decision — whatever its nature — must be published, to protect third parties dealing with the company (Article 218).

4. Default to the rules for general partnerships (Article 219)

Liquidation is conducted in principle in accordance with the rules laid down for general partnerships (treated in Part 2), subject to the specific rules set out below (Article 219).

5. Appointment of liquidators (Article 220)

The liquidators are appointed in three stages:

1. Where they are named in the bylaws, the bylaws govern.
2. Where the bylaws do not name them, the general assembly appoints them — the ordinary assembly where dissolution arises from expiry of the term, completion of the project, or impossibility of completing it; the extraordinary assembly where early dissolution is sought (in which case the assembly decides on the appointment at the same session as the dissolution).
3. Where the assembly does not appoint them, appointment is made by the competent court on the application of any interested party (Article 220).

6. Role of the auditors in liquidation (Article 221)

The auditors, joined by the expert appointed by the court, remain in office and supervise the liquidation. The auditor’s mandate continues through liquidation rather than ending with dissolution (Article 221).

7. Handover of management accounts before liquidation (Article 222)

The liquidators receive the accounts of the management acts performed by the board and the general manager between the assembly’s approval of the last balance sheet and the opening of the liquidation. They either approve them or refer the matters that appear to them problematic to the competent court (Article 222).

8. Annual and final balance sheets (Articles 223 and 224)

Where the liquidation lasts more than one year, the liquidators must prepare and publish the annual balance sheet (Article 223). On completion of the liquidation, the liquidators prepare the final balance sheet showing each shareholder’s share in the distribution of the company’s assets (Article 224).

9. Auditors’ report and approval of the liquidators’ accounts (Article 225)

The auditors prepare a report on the accounts submitted by the liquidators. The ordinary general assembly approves the accounts and either discharges the liquidators or contests the accounts, in which case the matter is referred to the competent court (Article 225).

V. Mergers and Demergers — Book IX (Articles 210 to 213 bis 26)

Thirty articles forming a complete regime, not amended in 2019. Book IX was added to the Code of Commerce in a prior reform and has not been touched since. The pre-2019 merger provisions (the now-repealed Articles 210–213) were brief and inadequate for modern operations; their content was relocated to Book IX, which replaced them with a fully developed regime covering both mergers and demergers.

1. Definitions (Article 210)

The merger of companies is effected by transferring the estate of one or more companies to an existing company or to a new company formed for that purpose.

The demerger of companies is effected by transferring the estate of a single company to several existing or new companies.

Companies in liquidation may participate in mergers and demergers on condition that the distribution of assets among the partners has not begun.

The absorbed company is the company that disappears as a result of the operation. The absorbing company is the company to which all, part, or the net of the assets is transferred.

Where a merger occurs, the board of the absorbing company may be enlarged up to twenty members — a practical exception to the twelve-member ceiling of Article 144 (Article 210).

2. Application of amendment and formation rules (Article 211)

Mergers and demergers may take place between companies of different forms, subject to the rules for amendment of the bylaws applicable to each. Where the operation entails the formation of a new company, the formation is subject to the rules applicable to that company form (Article 211).

The merger or demerger therefore requires the approval of the extraordinary general assembly of each participating company (because it constitutes a substantive amendment to its bylaws); the new company formed by the operation is subject to the formation rules applicable to its form.

3. Transfer of the estate (Article 212)

A merger or demerger entails the dissolution of the absorbed companies without liquidation and the transfer of their estate to the absorbing companies in the condition in which it stands at the date the operation is completed, including the leasehold rights.

The partners in the absorbed companies acquire the status of partners in the absorbing companies under the conditions set in the merger or demerger contract; the old shares and capital parts are exchanged for shares or capital parts in the absorbing companies. The exchange may include a cash balancing payment of at most 10% of the nominal value.

No exchange takes place where the shares or capital parts are held by the absorbing company or by the absorbed company (cross-held or treasury shares); their value is taken into account in valuing the shares (Article 212).

The most distinctive feature of this regime is transfer of the estate without liquidation — the absorbed company does not undergo the dissolution-liquidation-payment-of-debts-distribution sequence; everything it owns and owes passes to the absorbing company in a single transfer.

4. Effective date (Article 213)

Three rules:

1. Where a new company is formed, the operation takes effect from the date of registration of the new company in the commercial register; where several new companies are formed, from the date of the last registration.
2. In other cases, from the date of registration of the minutes of the last general assembly approving the operation, unless the agreement provides for another date.
3. The agreed date may not be later than the closing of the absorbing company’s current financial year and may not be earlier than the closing of the absorbed company’s last financial year (Article 213).

5. Unanimity required where shareholder liabilities increase (Article 213 bis 1)

Where a merger or demerger would increase the obligations of the partners or shareholders in the companies concerned, it may be decided only by unanimity (Article 213 bis 1).

This is a mandatory rule. The ordinary majority for bylaw amendments is the two-thirds majority of Article 204; for increases in shareholder liabilities, unanimity is required.

6. The merger or demerger project: filing and publication (Article 213 bis 2)

The participating companies prepare and file the merger or demerger project with the commercial register at their head office, register it there, and publish a summary in the Official Gazette, in a local newspaper, and/or by the electronic means referred to in Article 101, within one month of the approval by the extraordinary general assembly.

The project includes: the name, form, and head office of each company; the purpose and conditions of the operation; the value of the assets and liabilities; the closing date of the accounts; the exchange ratio and any cash balancing payment; and the amount of the merger or demerger premium (Article 213 bis 2).

7. Assembly decision and the two reports — from the board and from the auditors (Articles 213 bis 3 and 213 bis 4)

The merger decision is taken by the extraordinary general assembly of each participating company, on the basis of a written report prepared by the board and made available to the shareholders, together with the joint and special reports provided for in Article 213 bis 4 (Article 213 bis 3).

The auditors of the participating companies prepare a joint report on the operation and the value of the shares and the exchange ratio. The joint report must establish that the net asset value of the absorbed company is not less than the increase in the capital of the absorbing company — a safeguard for the existing shareholders of the absorbing company.

The judge supervising the commercial register appoints one or more special auditors to examine the project and submit their observations within at most three months of being assigned, in a reasoned report.

The two reports (joint and special) are made available to the shareholders at the head office of each participating company at least one month before the date of the assembly that is to decide on the merger.

The final decision rests with the extraordinary general assemblies of the participating companies.

Both reports are filed with the commercial register (Article 213 bis 4).

8. Exemption where one company owns the other in full (Article 213 bis 5)

The joint and special reports are not required where the merger takes place between two companies one of which holds the entire share capital of the other, at any point between the filing of the project and the holding of the extraordinary general assembly of the absorbing company (Article 213 bis 5).

Where the ownership is total, there is no third-party interest requiring the reports’ protection: the only shareholder of the absorbed company is the absorbing company itself.

9. New company formed from the contributions of merging companies (Article 213 bis 6)

Where the merger is effected by the formation of a new company, the new company may be formed with the contributions of the merging companies alone. In all cases, the bylaws of the new company are approved by the extraordinary general assembly of each merging company, and no further approval by a general assembly of the new company is required (Article 213 bis 6).

The new company has no pre-formation general assembly; the approvals of the predecessor companies are sufficient.

10. Protection of bondholders (Articles 213 bis 7 to 213 bis 11)

A five-article series governs the protection of bondholders in merger and demerger operations.

The merger project is submitted to the bondholders’ assembly in the absorbed companies. If the assembly approves, the bonds pass to the absorbing company. If the assembly refuses, the merger may nonetheless proceed, but it does not bind the dissenting bondholders, who recover their debts from the assets of the absorbed company without sharing with the creditors of the absorbing company. The assembly may delegate a representative to file an opposition. The merger project need not be submitted to the bondholders’ assembly where repayment of the debt is offered to the bondholders on request; in that case the absorbing company becomes liable for what is owed. The repayment offer is made by publication in the Official Gazette and in a local newspaper; a bondholder who does not claim repayment within one month of the last publication retains his rights in the absorbing company (Article 213 bis 7).

The absorbing company remains liable to the creditors of the absorbed company other than the bondholders and takes the absorbed company’s place in those debts without novation (Article 213 bis 8).

The non-bondholder creditors of the participating companies may file an opposition before the competent Court of First Instance within one month of the last publication. The court may reject the opposition, order payment of the debts, accept the guarantees offered by the absorbing company if it finds them sufficient, or require additional guarantees. The opposition does not in itself prevent the merger from proceeding — but where the debts are not paid and no guarantees are accepted, the merger does not bind the opposing creditor (Article 213 bis 9).

The merger project is not submitted to the bondholders’ assembly of the absorbing company, but that assembly may delegate representatives to file an opposition under Article 213 bis 9 (Article 213 bis 10).

The rules of Articles 213 bis 7 and 213 bis 8 (bondholders and ordinary creditors) apply equally to demergers (Article 213 bis 11).

11. Rules specific to demergers (Articles 213 bis 12 to 213 bis 16)

Where the demerger is effected to newly formed SALs, each may be formed with the contributions of the demerging company alone. Where the shares of the new companies are allocated to the shareholders of the demerging company in proportion to their existing rights, the joint and special reports of Article 213 bis 4 are not required — a procedural simplification where the allocation is strictly proportional (Article 213 bis 12).

The rules of Article 213 bis 11 (bondholders) apply to the demerging companies’ bondholders, subject to Article 213 bis 19 (Article 213 bis 13).

The demerger project is not submitted to the bondholders’ assembly of the absorbing companies, which may, however, delegate representatives to file an opposition (Article 213 bis 14).

The companies benefiting from the contributions of the demerged company are jointly and severally liable to the bondholders and to the other creditors of the demerged company, and take its place in those debts without novation (Article 213 bis 15).

A company that transfers part of its assets to another company may agree with the recipient company to subject the operation to the rules of Articles 213 bis 15 to 213 bis 19. The demerger regime is therefore available for partial asset transfers between companies (Article 213 bis 16).

12. Rules specific to limited liability companies (Articles 213 bis 17 and 213 bis 18)

Articles 213 bis 8, 9, 12, 13, and 19 apply to mergers or demergers of limited liability companies (SARLs) into companies of the same form. Where the operation is effected by contributions in kind to existing SARLs, the general SARL rules on contributions in kind also apply. Where the merger is effected by contributions to a new SARL, the new SARL may be formed only with the contributions of the merging companies; the same rule applies to demergers into new SARLs (Article 213 bis 17).

The same procedural simplification — no joint and special reports — applies where the capital parts are allocated in strict proportion to the partners’ rights; the partners of the absorbed companies may act as the founders of the new companies by operation of law.

A SARL that transfers part of its assets to another company may, by agreement with the recipient, subject the operation to the rules for demergers into existing SARLs (Article 213 bis 18).

13. Mixed operations (Article 213 bis 19)

Operations involving both share companies and limited liability companies are governed in particular by Articles 213 bis 8, 9, 12, 13, 19, and 21 (Article 213 bis 19).

This is the coordination rule for cross-form operations (for example, the absorption of a SARL by an SAL or the reverse).

14. Fiscal and registration exemptions (Articles 213 bis 20 to 213 bis 26)

The fiscal regime of mergers and demergers is set out in seven articles.

The procedures and operations required by mergers and demergers are exempt from the stamp tax (Article 213 bis 20).

Mergers between companies are exempt from stamp taxes, transfer taxes, conveyance taxes, notarial fees, and registration fees with all the relevant authorities (Article 213 bis 21).

The merging companies must pay the taxes due before the date of the merger; the rules of the Tax Procedures Law govern liability for subsequent taxes. The merging companies are exempt from the requirement to produce a clearance certificate from the National Social Security Fund (Article 213 bis 22).

The merging and absorbing companies are subject to the Article 45 capital-gains tax under the Income Tax Law on the revaluation gains on fixed assets, at a reduced rate of 5%. Profits from the disposal of a fixed asset that was revalued for the purposes of the merger are subject to the ordinary rate without reduction where the disposal occurs within two years of the completion of the operation (Article 213 bis 23).

Demergers into two or more newly formed companies are exempt from all stamp, transfer, conveyance, notarial, and registration fees. These fees remain payable where the demerger is effected in favour of one or more existing companies — a practical distinction between formative demerger (exempt) and absorptive demerger (not exempt) (Article 213 bis 24).

The demerged company must pay the taxes due before the date of the demerger, and is exempt from the requirement to produce a clearance certificate from the National Social Security Fund (Article 213 bis 25).

The tax on revaluation gains in a demerger depends on the destination:

• Demerger into two or more newly formed companies: 5% reduced rate.
• Demerger into two or more existing companies: ordinary rate without reduction.
• Demerger into a mix of new and existing companies: the portion attributable to the existing company is taxed at the ordinary Article 45 rate (Article 213 bis 26).

The fiscal regime therefore favours formative demergers (creation of new companies) over absorptive demergers (into existing companies).

Practitioner Notes

On board governance

1. Verify the one-third Lebanese threshold at every change in board composition (Article 144). When seats are reduced or composition changes through resignation or new appointments, confirm that the proportion of Lebanese members has not fallen below one third. The verification is required on every renewal and on every filling of vacancies under Article 146.
2. Consider the chairman/general-manager separation before opening to public subscription (Article 153). Larger SALs contemplating broader subscription may find the separated model better aligned with their governance needs. The choice is made by a clause in the bylaws and implemented by board resolution at the time of appointing the general manager.
3. Maintain a related-party register for transactions with shareholders holding 5% or more (Article 158). The 5% threshold is low and may capture ordinary transactions that the company does not flag in real time. Keep an internal register recording, for each transaction: the counterparty’s name, its shareholding percentage, the nature of the contract, the date of the board’s authorisation, the date of notification to the auditors (within fifteen days), and the date of the report to the general assembly. The register protects against subsequent disputes and liability claims.
4. Review the 6/3/8 multiple-mandate caps annually (Article 154). Persons accumulating chairmanships or memberships across several companies risk being deemed resigned after notice from an interested person, with the further risk that board decisions taken in their presence may be annulled. A twelve-month review of each director’s roster of mandates is the practical safeguard.

On general assemblies

1. Expressly provide for remote attendance in the bylaws (Articles 156 and 181). Remote attendance is not automatic — it requires a bylaw clause, an identity-verification mechanism, and the recording of the proceedings. SALs with shareholders outside Lebanon, or with boards meeting across several jurisdictions, benefit from this regime, provided it is set out in the bylaws before the assembly is held.
2. Hold the annual financial-statements board session in person (Article 156). The session at which the board prepares and approves the annual financial statements may not be held with remote attendance. The prohibition is mandatory; a breach exposes the resulting decision to nullity.
3. Convene the extraordinary assembly where the company loses three quarters of its capital (Article 216). The duty falls on the board. Failure to convene exposes the company to a minority application to the court under Article 217 for dissolution or appropriate measures.

On dissolution and liquidation

1. Plan the three-tier liquidator-appointment sequence (Article 220). The best practice is to name the liquidators in the bylaws where the founders foresee an orderly winding-up. The fallback is appointment by the assembly under a clear procedure. Failure at both levels exposes the company to court appointment, which may take time.
2. Publish the annual balance sheet in long liquidations (Article 223). Where the liquidation exceeds one year, the duty to publish arises and falls on the liquidator. Neglect exposes the liquidator to professional liability.

On mergers and demergers

1. Verify unanimity in advance where the operation increases shareholder liabilities (Article 213 bis 1). The unanimity requirement is mandatory and may be triggered by, for example, a transition from an SAL to a general partnership (which increases personal liability) or by the introduction of a short-term capital-repayment obligation. The two-thirds majority of Article 204 is not sufficient in these cases.
2. Full ownership simplifies the procedure (Article 213 bis 5). A company that acquires the entire share capital of a wholly owned subsidiary before the merger benefits from the exemption from the joint and special reports. Acquiring the remaining shares in the window between the filing of the project and the assembly date can shorten the timetable and reduce cost.
3. Plan bondholder protection in advance (Articles 213 bis 7 and following). Where the absorbed company has issued bonds, the merger must be submitted to the bondholders’ assembly. If the assembly refuses, the dissenting bondholders recover their debts from the assets of the absorbed company without sharing with the creditors of the absorbing company. The alternative is to offer repayment of the debt on request by formal publication, which replaces the bondholders’ assembly.
4. Right of opposition for ordinary creditors (Article 213 bis 9). Non-bondholder creditors have one month to file opposition before the Court of First Instance. Absorbing companies seeking to accelerate the operation often offer pre-publication guarantees to neutralise the opposition. Where opposition stands and is not satisfied, the merger does not bind the opposing creditor and the debt remains on the absorbed company.
5. Fiscal planning by demerger destination (Article 213 bis 26). Demergers into newly formed companies benefit from the 5% reduced rate on revaluation gains. Demergers into existing companies are subject to the ordinary rate. The destination choice has a measurable fiscal effect and warrants attention at the structuring stage.

Conclusion

This Part has covered the SAL in its operating life — board governance, internal supervision, shareholder assemblies — and in its endings — dissolution and liquidation, merger, and demerger. The 2019 reform reached this Part more than any other Part in the series, touching 57 articles across three distinct fronts:

• Governance. Reduction of the nationality requirement to one third, opening of the chairman/general-manager separation, raising of the multi-mandate caps, regulation of related-party transactions at the 5% threshold, revision of the civil-liability standard from the agent-of-the-company test to the diligent-professional test.
• Supervision. Conversion of the auditor’s function into a professional financial audit, introduction of the additional auditor as a 10% minority-protection mechanism, extension of the independence rules to consulting contracts with the company and with significant shareholders.
• Assemblies and decisions. Introduction of remote attendance, extension of proxy rights to non-shareholders by bylaw provision, recalibration of decision majorities on votes rather than on heads, revision of the nullity regime to require that the procedural breach has actually distorted the result.

Book IX on mergers and demergers stands outside the 2019 reform — a regime that has remained stable since its introduction and offers a complete 30-article framework with seven articles dedicated to the fiscal treatment of the operations.

The next post in the cluster (cross-link to be inserted at cluster publication) continues with the Limited Liability Company (SARL) under Decree-Law No. 35 of 5 August 1967 — a separate corporate form for the small and mid-sized business that shares with the SAL its underlying logic of limited liability, transferable interests, and graduated governance, while adapting each to the smaller capital base and the smaller circle of participants typical of the SARL.

Related Posts in This Cluster

Part of the Practical Guide to Lebanese Commercial Law — corporate forms series:

• Comparative Table: SAL, Holding, Offshore, and SARL Companies under Lebanese Law
• The Joint Stock Company — Part 1: Formation, Documents, and Securities (Articles 77–143)
• Convertible Bonds — SAL Supplement (Legislative Decree 54/1977)
• The Limited Liability Company (SARL) — Legislative Decree 35/1967
• Holding Companies — Legislative Decree 45/1983
• Offshore Companies — Legislative Decree 46/1983

Arabic original: الشركة المغفلة (2): سير الأعمال، الحلّ، الاندماج والانشطار — الجزء الرابع من الدليل العملي للقانون التجاري