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The Joint Stock Company — société anonyme libanaise, in commercial usage SAL (شركة مغفلة لبنانية, abbreviated «ش.م.ل.» on Lebanese commercial documents) — is the principal capital-company form under Lebanese commercial law. Unlike the partnerships covered in Part 2 of this series and the SARL covered in Part 5, the SAL is built on capital rather than on the identity of any partner: its share capital is divided into negotiable shares; its shareholders bear no personal liability for company debts beyond the value of their shares; and the death or share transfer of any shareholder does not affect the company’s continuity. This is the legal vehicle for capital-intensive Lebanese economic activity: banks, insurance companies, large industrial undertakings, real-estate companies, and any company that operates a public service or public utility.

This Part 1 covers the formation of the SAL (founders, subscription, capital, in-kind contributions, the constitutive assembly, nullity, publication) and the financial instruments the SAL is empowered to issue (ordinary shares, preferred shares, debentures). It spans Articles 77 to 143 of the Code of Commerce, supplemented by the twelve articles on preferred shares introduced into Book II by Article 14 of Law No. 308 of 3/4/2001 (Articles 121 bis 1 through 121 bis 12). The operation of the SAL once incorporated — board, general assemblies, auditors, related-party transactions, dissolution, merger, and demerger (Articles 144–225 + Book IX) — is the subject of Part 2 of the SAL coverage.

Amendment chronology. Five distinct waves shape the regime as it applies today:

• Legislative Decree No. 9798 of 4/5/1968 (a dedicated amendment statute) — among other revisions, settled the minimum-of-three-founders rule in Article 79 in its current wording.
• Law No. 120 of 9/3/1992 (a dedicated amendment statute) — set the minimum share capital at LBP 30 million (Article 83).
• Law No. 308 of 3/4/2001 (the law regulating the issuance of, and trading in, bank shares) — its Article 14 introduced the twelve-article preferred-share regime that became Articles 121 bis 1 through 121 bis 12. This regime predates and was not touched by the 2019 reform.
• Law No. 75 of 27/10/2016 (a dedicated statute on the abolition of bearer and order shares, as later amended by Law No. 144/2019 and Law No. 260/2022) — abolished bearer (au porteur) and order shares in Lebanese SALs and sociétés en commandite par actions, mandated the conversion of all existing such shares into nominative form within three years, and fixed severe sanctions for non-compliance (50% of capital fine, suspension of shareholder rights after one year, and transfer of ownership to the Lebanese State after two years). Article 104 of the Code of Commerce as replaced by Law No. 126/2019 mirrors this rule by defining a share as a security that is, by law, nominative.
• Law No. 126 of 29/3/2019 (a dedicated amendment statute, the most substantial reform of the SAL since enactment) — rewrote or amended twenty-nine of the sixty-seven articles within the scope of this Part. The reform redesigned the publication regime around the Commercial Register (replacing the legacy Official Gazette + two-newspapers requirement), introduced mandatory electronic filing on a two-year transitional schedule, tightened the per-share quarter-payment rule on subscription, redesigned the disposal-of-shares regime (including the split between usufruct and bare-ownership holders), restructured the rules on voting in cases of usufruct and undivided ownership, confined the legacy double-voting privilege to companies incorporated before 29/3/2019, and recalibrated the regimes governing nullity of formation, monitor liability for fictitious dividends, and recovery of fictitious distributions.

Two practitioner-stale-knowledge points deserve emphasis up front. First, the minimum capital floor of LBP 30 million set in 1992 has not been revised — its nominal value remains in force, but its real economic significance has been substantially eroded by the post-2019 depreciation of the Lebanese pound. Second, the abolition of bearer and order shares took effect with Law 75/2016, not with the 2019 reform; this is a common miscitation point. All Lebanese SAL shares have been nominative — and only nominative — since 2016.

The texts relied on are those in force after Law No. 126 of 29/3/2019.

The sixty-seven articles within scope, supplemented by the twelve preferred-share articles, are addressed below on nine axes: (I) definition and scope; (II) formation — founders, subscription, capital; (III) in-kind contributions, constitutive assembly, nullity; (IV) publication and annual financial filings; (V) shares — definition, rights, dividends; (VI) class-right modification and preemption on capital increase; (VII) voting, jouissance, disposal, unpaid balance; (VIII) preferred shares under the 2001 regime; and (IX) debentures and the bondholders’ assembly.

I. Definition and Scope of the SAL

1. The Definition

The SAL is a commercial company whose capital is divided into shares — i.e., negotiable securities — operating under a corporate name, formed by no fewer than three persons who subscribe to shares and bear no liability for the company’s debts beyond the amount of their contributions (Article 77 of the Code of Commerce, as replaced by Law No. 126 of 29/3/2019). Three features flow from this definition:

• A minimum of three founders. The rule applies both at formation and on an ongoing basis.
• A corporate name rather than a partnership-style name drawn from the names of the partners. The corporate name is selected freely by the founders to designate the subject of the enterprise or by agreement among themselves.
• Liability limited to the contribution. No shareholder is exposed in his personal estate for company debts. The death of a shareholder, or the transfer of his shares, does not affect the company’s continuity.

2. Scope of Application; Lebanese-Capital Threshold for Public-Service SALs

The rule. Every SAL — regardless of its subject — is governed by the law and customs of commerce. A civil-by-nature subject does not take the SAL outside the commercial-law regime. This is the commercial form principle: the SAL is a commercial company by reason of its form, not by reason of its activity (Article 78, as replaced by Law No. 126 of 29/3/2019). The complementary rule that an SAL incorporated in Lebanon has its head office in Lebanon and is Lebanese by operation of law applies to every commercial company and lives at its proper location in Article 43 of the Code of Commerce (covered in Part 2 of this series).

The carve-out: one-third Lebanese-capital threshold for public-service SALs. By exception, SALs whose subject is the investment of a public utility or public service (مرفق عام أو مصلحة عامة) must have at least one-third of their share capital in the form of nominative shares held by Lebanese natural persons, or by companies whose own capital is held in full by Lebanese persons through nominative parts or shares. The threshold reaches indirect ownership: a Lebanese-incorporated holding company whose own capital is not fully Lebanese cannot stand in for direct Lebanese ownership at the one-third level. The bylaws must prohibit disposal of those parts or shares to non-Lebanese, and any disposal in breach of this rule is null with absolute nullity (Article 78).

II. Formation: Founders, Subscription, Capital

1. Founder Qualifications

A SAL is formed by no fewer than three founders, none of whom may take part in the formation if he has been declared bankrupt and has not been rehabilitated for at least ten years, or has been convicted in Lebanon or abroad less than ten years previously of a felony or misdemeanour falling within fraud, embezzlement of moneys or values, drawing of cheques without sufficient funds in bad faith, attacks on the State’s financial standing within the meaning of Articles 319 and 320 of the Penal Code, or concealment of items obtained through these offences. The same conditions apply to the natural-person representatives of legal entities participating in the formation. The founders are jointly and severally liable for the engagements entered into and the expenses incurred for the purpose of the formation, with no right of recourse against the subscribers if the company is not formed (Article 79).

2. No Prior Administrative Authorisation; Notarial Deposit Liberalised

The formation of a SAL requires no prior administrative authorisation, subject only to the laws that condition the exercise of specified activities on a prior licence (banking, insurance, public-service concessions, etc.). The bylaws and all subsequent amendments must be deposited and recorded with any notary on Lebanese territory — the legacy requirement that the deposit be made with the notary of the company’s registered office was removed (Article 80, as replaced by Law No. 126 of 29/3/2019).

3. Publication Prior to Public Subscription

If the formation involves a public call for subscription (دعوة موجَّهة إلى الجمهور), the founders must publish a notice in the Official Gazette and in two newspapers, one local daily and one economic, containing: the name, signature, and address of each founder; the company’s name, registered office, branch addresses, subject, duration, and capital amount; the share price and the portion to be paid up; the value of in-kind contributions; the fixed-interest clause if any; the conditions for profit distribution if any; and the number of directors, their compensation, and their powers. The same statements must appear in the individual subscription forms, share certificates, posted notices, broadcasts, and circulars, together with a reference to the issues of the newspapers in which the notice was published. The duty is confined to public subscriptions — a closed-circle SAL incorporated without a public call is not bound to publish prior to subscription (Article 81).

Breach exposes the responsible parties to a fine ranging from two million to ten million Lebanese pounds, and the court may, where appropriate, annul the subscriptions concluded (Article 82).

4. Minimum Capital and Per-Share Quarter Payment

The minimum share capital is thirty million Lebanese pounds (Article 83 — the threshold set by Law No. 120 of 9/3/1992 and not adjusted since). Full subscription is a condition; full payment is not — paying up one quarter on subscription is enough.

The minimum nominal value of a share is one thousand Lebanese pounds, and each subscriber must pay up at least one quarter of the nominal value of every share to which he subscribes (Article 84, as replaced by Law No. 126 of 29/3/2019). The per-share rule replaced an earlier aggregate rule under which a quarter of the total subscription price was enough — a quarter of the aggregate could be satisfied by paying up some shares in full and leaving others entirely unpaid. The current rule applies the quarter floor to each share, individually. A subscription form that aggregates quarter payments across the portfolio is non-conforming.

5. Bank Deposit and the Six-Month Window for Founders’ Consensual Withdrawal

The amounts paid by subscribers before the company is definitively formed are deposited in an account opened in the name of the “company under formation” with a Lebanese bank, together with the list of subscribers and the amount paid by each. The amounts are released after formation, on the signature of the person(s) designated under the bylaws, against production of a certified copy of the bylaws and of the minutes of the constitutive assembly. Breach exposes the company to a fine equal to ten per cent of the undeposited, withdrawn, or misused amount, in addition to criminal liability for breach of trust and civil liability (Article 85, as replaced by Law No. 126 of 29/3/2019).

If the company is not formed within six months from the date of notarial signature of the bylaws, any subscriber may petition the urgent-matters judge to appoint a provisional administrator entrusted with withdrawing the deposit and returning the funds to subscribers after deducting distribution expenses. As a complement, the founders — acting unanimously, before any subscription by shareholders other than the founders, and at any time prior to the expiration of the six-month window — may decide to withdraw the deposited amounts and abandon the formation, on production of a notarised instrument cancelling the bylaws and of proof that any taxes and fees due have been paid. This consensual exit channel avoids the urgent-matters petition where the founders agree among themselves to halt the project before subscription opens.

III. In-Kind Contributions, Constitutive Assembly, Nullity

1. Judicial Valuation of In-Kind Contributions

The validity of the valuation of in-kind contributions (مقدَّمات عينية) is subject to the assessment of one or several experts appointed by the president of the court of the district in which the company has its registered office, by an order issued at the request of the founders. The bylaws may not grant special advantages to any person (Article 86, as amended by Law No. 126 of 29/3/2019).

2. Subscriber’s Right to Withdraw on Overvaluation

If the founders’ valuation exceeds the true value determined by the expert by twenty per cent or more, the subscribers may withdraw their subscriptions. The founders may then themselves subscribe — or induce others to subscribe — for the shares of the withdrawing subscribers. This is a protective rule that gives the subscriber an exit when the valuation is materially inflated, without forcing him to remain in a subscription founded on a distorted valuation (Article 87).

3. Full Payment and Lock-Up of In-Kind Shares

Shares issued against an in-kind contribution must be fully paid up at the time of formation (in contrast to cash shares, where one-quarter payment suffices under Article 84). They must remain nominative, attached to the stub, and bear a stamp indicating their nature and the company’s date of incorporation. They are not transferable until the general assembly has approved the accounts of the company’s second financial year. The lock-up does not apply to in-kind shares allocated to shareholders of a company being merged whose shares were already transferable (Articles 88 and 89).

4. The Constitutive General Assembly

Within the month following the experts’ report, the founders must convene a constitutive general assembly of shareholders, with at least ten days’ notice, to consider the experts’ report on the valuation of in-kind contributions. Quorum and majority follow the rules applicable to this category of assembly. Holders of in-kind contributions — even where they have also subscribed for cash shares, or are acting as proxies of cash subscribers — may not vote on the valuation of the in-kind contributions (Article 90). This is a mandatory conflict-of-interest rule applied on a substantive basis, not on the form of the proxy.

The assembly must then conduct an enquiry, based on the supporting documents, into whether the conditions required for the formation of the company have been duly observed (Article 92). It then designates the first directors (if not already named in the bylaws) and the first auditors; the company is formed as of their acceptance. The directors and the auditors must verify that the company has been formed in conformity with the law, and they are jointly and severally liable in this regard (Article 93).

5. The Five-Year Joint and Several Liability Action for Overvaluation

The completion of the formation does not preclude a subsequent joint and several liability action — brought within five years from the date of formation — against the founders, the in-kind contributors, the first directors, and the experts, where a substantial overvaluation of the in-kind contributions becomes apparent. The action does not require proof of intent to overvalue: material evidence of substantial overvaluation suffices (Article 91, as amended by Law No. 126 of 29/3/2019).

6. Nullity for Defective Formation: Notice, Cure, and the Five-Year Window

If a SAL has been formed in a manner not in conformity with the law, any person having standing and interest (كلّ ذي صفة ومصلحة) may, within a five-year period running from the date of occurrence of the defect, serve formal notice on the company calling for the completion of the omitted formality. If the company does not undertake the corrective formality within one month, any person having standing and interest may then apply for a judgment declaring the company null. Shareholders may not invoke nullity against third parties. A nullified company is wound up as a de facto company (Article 94, as amended by Law No. 126 of 29/3/2019).

7. Civil Liability Action for Defective Formation

If the formation is unlawful, shareholders and third parties may bring — in addition to the nullity action — a joint and several liability action against the founders, the first directors, the first auditors, the in-kind contributors, and the experts where the verification process was not conducted in good faith. The action requires proof of causation between the defect of formation and the damage. The limitation period is the same five-year window applicable to the nullity action (Article 95, as amended by Law No. 126 of 29/3/2019).

8. Criminal Sanction for Selling Shares of a Defectively-Formed Company

Persons who, in good faith, deliver to subscribers definitive share certificates of a SAL formed in a manner not in conformity with the law — and persons who sell or take part in the sale of such shares or who officially publish their price — are punished by a fine ranging from two million to twenty million Lebanese pounds. Liability is engaged only where the defect of formation is at the least apparent (Article 96, as amended by Law No. 126 of 29/3/2019).

IV. Publication and Annual Financial Filings

1. Fraudulent Inducement to Subscribe

Any fraudulent act intended to induce the public to subscribe or to pay funds is punished with the penalties for fraud set out in the Penal Code (Article 97).

2. Initial Publication via the Commercial Register

After the company is formed, the directors must conduct the initial publication formalities by depositing and registering with the competent Commercial Register, within the month following formation, under penalty of a fine — set by the judge supervising the Commercial Register — ranging from five hundred thousand to one million Lebanese pounds, charged to the company. The formalities may be conducted by electronic means designated by the Minister of Justice, and must be conducted exclusively by electronic means from the second anniversary of the entry into force of the law — i.e., from March 2021. The electronic publication on the Commercial Register’s website is open to public consultation (Article 98, as amended by Law No. 126 of 29/3/2019).

3. Nullity for Failure to Publish

Failure to publish entails the consequences attached to non-publication — nullity of the company or of the omitted clause — and joint and several liability for the first directors and the first auditors, whose duty is to monitor the completion of all formalities (Article 99).

4. Ongoing Publication and Disclosure

A SAL is subject to a regime of ongoing publication: the bylaws must be posted at the company’s offices, with a right for any person to obtain a certified copy against payment of a moderate fee; and the company’s name must appear on all its papers — printed, handwritten, and electronic — together with a statement that the company is a SAL, the amount of its share capital, and the portion paid up. The reach of the disclosure obligation thus extends to official email correspondence, electronic invoices, the company website, and similar electronic communications (Article 100, as replaced by Law No. 126 of 29/3/2019).

5. Annual Filings with the Commercial Register

The directors must, each year and within two months of the general assembly’s approval of the financial statements — and in any case no later than 31 December of the current year — deposit the following six documents with the competent Commercial Register (Article 101, as replaced by Law No. 126 of 29/3/2019):

1. The auditors’ report attached to the individual financial statements for the past financial year (balance sheet, statement of income, statement of changes in equity, notes).
2. The auditors’ report attached to the consolidated financial statements for the past financial year.
3. The auditors’ special report under Article 158 (related-party transactions).
4. The directors’ report on the company’s activity for the past financial year.
5. The directors’ report under Article 158.
6. The attendance sheet and minutes of the general assembly’s meeting approving the financial statements, including: the result for the financial year; accumulated results (in particular those that trigger a measure under Article 216 on share capital); the names of the directors elected; and the appointment of the auditors as the appointment falls due.

Copies of the deposited documents are obtainable from the Commercial Register at the requesting party’s expense. The formalities may be completed by electronic means after the two-year transitional period.

The redesign of Article 101 by Law No. 126/2019 is fundamental for practitioners advising on the SAL: annual disclosure has been moved off the press and onto the Commercial Register. The legacy regime required publication of the balance sheet and a list of directors and auditors in the Official Gazette and in two newspapers; the current regime requires deposit at the Commercial Register of a six-document package, accessible to the public through the Register’s electronic interface.

6. Sanction and Social-Security Exemption

The judge supervising the Commercial Register imposes a fine of one hundred thousand Lebanese pounds per year, per document not duly deposited, on the company. For the purpose of depositing and registering the documents listed in Article 101 within the prescribed time limits, the company is exempted from the requirement to produce a clearance certificate from the National Social Security Fund (Article 102, as replaced by Law No. 126 of 29/3/2019). This exemption is a useful operational point: an open social-security dispute should not delay the annual filing.

V. Shares: Definition, Rights, Dividends

1. The Financial Instruments the Company May Issue

A SAL issues shares; it may also issue debentures and bonds convertible into shares. It may not issue founders’ parts — instruments giving founders a right to a portion of company profits without contribution to capital. The prohibition on founders’ parts is a mandatory rule protecting original shareholders from dilution of their profit entitlement in favour of persons who did not contribute capital (Article 103).

2. Definition of the Share — Nominative Only

Shares are equal, indivisible portions of the company’s share capital, represented by negotiable instruments that are nominative (Article 104, as replaced by Law No. 126 of 29/3/2019, in coordination with Article 14 of Law No. 308 of 3/4/2001). The bearer-share and order-share forms have been removed from Lebanese SAL practice since Law 75/2016 (see lede). The shift aligns the SAL with the anti–money-laundering regime, which requires the traceability of shareholder identity.

3. Rights Attached to the Share

The following rights are attached to each share: the right to dividends; the preemptive right of subscription on a capital increase; the right to be repaid the nominal value of the share; the right to a share of company assets on winding-up; the right to vote in the general assembly; and the right to dispose of the share (Article 105).

4. Net Profits and the Prohibition of Fictitious Dividends

Dividends may be drawn only from net profits arising from a true balance sheet and remaining available after deduction of the amount required to constitute the legal reserve and the statutory reserve (Article 106). This is a hard rule protecting share capital from erosion through fictitious distributions.

5. Liability for Distributing Fictitious Dividends

Every distribution of fictitious dividends engages the civil liability of the directors towards any person suffering damage. The auditors are likewise civilly liable on the same footing, save where they prove the absence of any fault in their monitoring (Article 107, as replaced by Law No. 126 of 29/3/2019). The directors and the auditors are criminally liable where dividends are distributed without a balance sheet, or on the basis of a falsified inventory, balance sheet, or financial statement; the penalty is that for fraud or such other penalty as the law provides.

The shift in the regime governing the auditors’ civil liability under Article 107 is substantive: the legacy rule required proof of fault by the claimant; the current rule presumes fault and shifts to the auditors the burden of proving the absence of fault in monitoring. The standard of care expected of an auditor has accordingly been tightened.

6. Recovery of Fictitious Dividends Received in Bad Faith

Shareholders who have received fictitious dividends are not bound to repay them unless their bad faith — or a gross fault tantamount to fraud — is proved. A recovery action may be brought by the company, by its creditors, or by any individual shareholder — a standing point worth noting, since an individual shareholder may bring the action in the company’s interest without depending on the company itself or its creditors to act first. The recipient is obliged to repay the amount unlawfully received together with interest from the date of payment, and the action is time-barred five years from the date of distribution (Article 108, as replaced by Law No. 126 of 29/3/2019).

7. Fixed Interest

The amounts distributed under a fixed-interest (intérêts fixes) clause — payable to shareholders in all circumstances and entered among the company’s expenses rather than its profits — are not regarded as fictitious dividends. The clause is lawful only if: (i) the interest rate does not exceed four per cent; and (ii) the application period does not exceed five years. It must be published by deposit in the company’s file at the Commercial Register, failing which it is null (Article 109).

8. Priority Shares (Article 110)

The bylaws — or a resolution of an extraordinary general assembly — may create priority shares entitling their holders to preference in dividends, in capital repayment, in both, or in any other material advantage (Article 110, as replaced by Law No. 126 of 29/3/2019). These priority shares are distinct from the preferred shares introduced by Law No. 308/2001 (treated in §VIII below); the two regimes are independent.

VI. Modifying Class Rights and Capital Increases

1. Class-Right Modification Requires a Special Meeting

A general-assembly resolution that would in any manner reduce the rights of a class of shares is not effective unless approved by a special meeting of the holders of the affected class. The special meeting deliberates on the same quorum and voting rules as those applicable to extraordinary general assemblies. This is a mandatory rule that the general assembly cannot override: resolutions affecting a class are effective only with the consent of that class (Article 111).

2. Preemptive Right on Cash Capital Increase

When share capital is increased through the issue of new shares to be paid up in cash, the existing shareholders of all classes have, in principle, a preemptive right to subscribe to the new shares in proportion to their existing holdings. The extraordinary general assembly that resolves on the capital increase takes all measures concerning the shares not absorbed by preemption (Article 112).

3. Removal of Preemption — Subject to Expert Verification

An extraordinary general assembly may resolve that the preemptive right be set aside, granted only in part, or granted on a basis other than the proportion of existing holdings. In that case, every allocation of new shares — whether to non-shareholders or to a class of privileged shareholders — is subject to the verification regime applicable to in-kind contributions. The verification covers all shares allocated to non-shareholders, and — as to shareholders — only the portion exceeding the preemptive proportion. If the verification is not conducted, the capital increase is null (Article 113).

VII. Voting, Jouissance, Disposal, Unpaid Balance

1. Repayment of Nominal Value and Distribution of Surplus

On winding-up, each shareholder is entitled — if sufficient assets remain — to repayment of the nominal amount of his share, subject to the priority of priority shares. Any surplus is distributed among all shareholders in proportion to the number of shares held (Article 114).

2. Capital Redemption and Jouissance Shares

The company may redeem its capital by allocating an amount drawn from its profits to a special reserve or to a depreciation reserve dedicated to that purpose, on terms set out in the bylaws or approved by the general assembly. Upon redemption, the redeemed shares are replaced by jouissance shares (actions de jouissance) carrying the privileges of the original shares except for the fixed interest set out in the bylaws and except for the nominal value at winding-up (Article 115, as amended by Law No. 126 of 29/3/2019).

3. Voting — Including Usufruct, Bare Ownership, and Undivided Holdings

The default rule is that every shareholder may attend general assemblies and holds, on a vote, a number of votes equal to the number of his shares. Three detailed regimes address recurring family-company and inherited-shareholding situations (Article 116, as amended by Law No. 126 of 29/3/2019).

Usufruct and bare ownership over a share. Where the company has been notified that a share is held in split form — usufruct (usufruit) on one hand and bare ownership (nue-propriété) on the other — the company must deliver all notices and materials to the usufructuary, including notices relating to the distribution of any economic benefits. The usufructuary alone has the right to attend, and to vote at, ordinary general assemblies. The bare owner has the right to attend, and to vote at, extraordinary general assemblies, and is the person to whom all notices and documents must be delivered. The usufructuary and the bare owner may contract out of this allocation, provided that the contrary agreement is reduced to writing, notified to the company, and registered with the Commercial Register.

Undivided ownership of shares. The undivided owners must designate one of their number, or a third person, to attend and vote at general assemblies. Failing agreement, the president of the competent first-instance court appoints a representative on the application of any of the undivided owners — by an order immediately enforceable, issued under the urgent-matters procedure, after hearing the other undivided owners. The representative continues in office until the annual general assembly that approves the financial statements; the president of the court may renew the appointment on the same procedure.

The detailed regimes are responsive to a recurring practical need in family companies and in companies whose capital is transmitted by inheritance: the resolution of voting deadlock between usufructuaries and bare owners (typical in estates where the surviving spouse holds the usufruct and the children hold the bare ownership) and between undivided owners.

4. Double Voting — Frozen at Pre-2019 Companies

Fully paid-up shares held by the same owner for at least two years prior to the notice of any assembly carry two votes each. Shares acquired by inheritance, gift, or legacy are treated for this purpose as having remained with the same owner. The extraordinary general assembly may, by unanimous shareholder resolution, abolish the double vote.

A clause added in 2019 confines the regime to companies incorporated before 29/3/2019: “The provisions of the first and second paragraphs of this Article do not apply to companies formed after the entry into force of this Law” (Article 117, as amended by Law No. 126 of 29/3/2019). The legislator’s choice was to unify the voting basis of newly-formed SALs on a one-share, one-vote rule, narrowing the legacy mechanism by which long-term shareholders consolidated control. A practitioner incorporating a new SAL has no occasion to provide for double voting; a SAL incorporated before 29/3/2019 retains the privilege unless its bylaws expressly abolish it.

5. Disposal of Shares — Preemption Among Shareholders and Buyback by the Company

Subject to the restrictions applicable to in-kind shares, every shareholder may freely dispose of his shares to any person, who then takes his place in the rights and obligations attached to the shareholder status. The bylaws may provide for a preemptive right in favour of the shareholders, or a category of them, or the company itself, provided that the right is exercised within the time limit and on the price-setting mechanism set out in the bylaws. The right may not be abused so as to render the share practically non-transferable or to cause excessive prejudice to the disposing shareholder (Article 118, as amended by Law No. 126 of 29/3/2019).

Where a share is held in usufruct/bare-ownership split form, the bare owner alone is entitled to exercise the preemptive right. The company may exercise its preemptive right only out of free reserves. A SAL whose shares are listed on financial markets may buy back its own shares out of free reserves, subject to a percentage cap determined by the regulations governing the financial markets.

6. Payment of the Balance, Subrogation, and Forced Sale of Shares

A shareholder whose shares are not fully paid up must respond to the board’s call for payment of the balance — or a portion of it — on the mechanism and conditions set out in the resolution carrying the call. All those who held the share before the present holder remain jointly and severally liable for the unpaid amount for a period of only two years from the date of disposal. Any contrary clause in the bylaws or contrary resolution is null with absolute nullity (Article 119, as amended by Law No. 126 of 29/3/2019).

A former shareholder who has been required to pay the balance — or a portion of it — on a share he had disposed of is subrogated to the company’s rights and claims against all subsequent holders. He retains in any event a right of recourse against the shareholder who acquired the share from him (Article 120, as amended by Law No. 126 of 29/3/2019).

If the call for payment is not honoured, the company may — after formal notice on the defaulting shareholder — sell the share, charging the expenses and losses of the sale to the defaulter. If the sale price is lower than the amount due, the defaulting shareholder remains liable for the difference, jointly and severally with the shareholders who held the share before him. The two-year limit on former-holder liability applies. Where the share is held in split form, the bare owner is the person liable to pay the balance under Articles 119, 120, and 121, save where a contrary agreement has been notified to the company by the board under Article 116 (Article 121, as amended by Law No. 126 of 29/3/2019).

VIII. Preferred Shares — The 2001 Regime

The twelve articles inserted into the Code of Commerce as Articles 121 bis 1 through 121 bis 12 — by Article 14 of Law No. 308 of 3/4/2001 — constitute a self-contained regime for preferred shares (أسهم تفضيلية) in the SAL. The regime predates Law No. 126/2019 and was not touched by that reform; its provisions remain in their original 2001 form.

1. Creation of Preferred Shares; the Excluded Rights

Subject to the provisions of Law No. 308 of 3/4/2001 governing the issuance and trading of bank shares, any SAL may create nominative preferred shares carrying defined privileges, rights, material benefits, or priorities, and enjoying all the rights set out in Article 105 with the exception of:

• the right to participate in deliberations and to vote at general assemblies;
• the right to hold a seat on the board of directors;
• the right to share in the company’s assets.

The company must keep preferred-share holders informed by delivering to them the information and documents prepared for the other shareholders (Article 121 bis 1). A preferred shareholder is in this respect a purely economic shareholder — not a political one.

2. Timing — Creation at Formation or on a Capital Increase

Subject to Article 207 (governing capital increases), preferred shares may be created either at the formation of the company or on any subsequent capital increase. Articles 112 and 113 — and Article 8 of Part 3 of Chapter 2 of Title 3 of Book II — do not apply to the creation of preferred shares. The company may nevertheless grant existing shareholders a preemptive right on the issue, on conditions set out in the bylaws or in the resolution of the extraordinary general assembly (Article 121 bis 2).

3. The 30% Cap

Preferred shares may not represent more than thirty per cent (30%) of the nominative shares constituting the company’s share capital as at the date of issue. The cap is a mandatory rule that cannot be set aside, designed to preserve administrative and voting control in the hands of ordinary shareholders (Article 121 bis 3).

4. The Preferred Dividend — Cumulative or Non-Cumulative

The bylaws or the resolution of the extraordinary general assembly specify the privileges, priorities, rights, and other material benefits attached to the preferred shares, including the preferred dividend and whether that dividend is cumulative or non-cumulative. Where profits are available, the company must distribute the preferred dividend. If the available profits are insufficient to pay the full amount, they are distributed among preferred shareholders in proportion to their holdings; if the dividend is cumulative, the unpaid balance is carried forward to the following financial year and, if necessary, to subsequent years. The preferred dividend is paid only after deduction of the amounts distributed under Article 109 (fixed interest). A subsequent issue of preferred shares may not impair the rights of older preferred shares, of Article 110 priority shares, or of convertible debt instruments, except with the approval of the special meeting of each affected class (Article 121 bis 4).

5. Restoration of Voting Rights

By way of exception to Article 121 bis 1, the holders of preferred shares acquire a voting right equal to that of ordinary shareholders — in proportion to the capital their shares represent — in the following cases (Article 121 bis 5):

1. Failure to pay the preferred dividend for a single financial year notwithstanding the availability of profits. The right persists until the end of the financial year in which the full accrued preferred dividend is paid.
2. Default by the company in providing the privileges, priorities, or other rights attached to the preferred shares. The right persists for as long as the privileges remain undelivered.
3. General assemblies addressing: a change in the company’s subject or form, an in-kind capital increase, early dissolution, or merger, absorption, or demerger operations to which the company is a party.

The political disenfranchisement of preferred shares is conditional on the company performing the privileges it has promised. If the company fails to deliver, the preferred shareholder regains his vote — a careful balance between the economic preference granted in exchange for political disenfranchisement, and the recovery of political voice when the bargain is breached.

6. The Special Meeting of Preferred Shareholders

The preferred shareholders of each issue form a special meeting, convened and deliberating on the same model as the assembly of debenture holders under Articles 137, 138, and 139. The meeting may issue advisory opinions on matters submitted to general assemblies — or on any matter in which preferred shareholders see an interest — and communicate them to the company for the information of the general assembly and inclusion in its minutes. The meeting may also designate a representative to attend general assemblies, with the right to express the meeting’s opinion before the vote — without participating in the vote — and to have that opinion recorded in the minutes (Article 121 bis 6).

7. Prohibition on Insiders Holding Preferred Shares

The chairman, the directors, the general managers and assistant general managers appointed under Article 153, and their spouses and minor children, are prohibited from holding preferred shares — or from any right of any kind over such shares — whether directly, indirectly, through a natural-person or legal-person nominee, or in any form whatsoever (Article 121 bis 7). This is a conflict-of-interest rule: management cannot hold a share that escapes the equality-among-shareholders rule, including through spouse, minor child, or any other intermediary.

8. Exclusion from Preemption on Cash Capital Increase

On a cash capital increase, preferred shareholders do not enjoy the Article 112 preemptive right in the new shares. The bylaws or the extraordinary general assembly may nevertheless grant preferred shareholders a preemptive right on conditions then defined; Article 113 §2 does not apply in that case. Where the company increases capital by incorporating reserves or retained profits, by distributing free ordinary shares, or by raising the nominal value of the share, preferred shareholders do not benefit from the distribution or the increase — unless the bylaws or the resolution creating the preferred shares provides otherwise (Article 121 bis 8).

9. Prohibition on Capital Redemption While Preferred Shares Are Outstanding

The company is prohibited, from the issue of preferred shares and for the duration of their existence, from any capital redemption under Article 115. Where capital is reduced for reasons unrelated to losses, the company must buy back and cancel the preferred shares before any buyback of ordinary shares or any reduction of their nominal value, subject to full payment of all accrued preferred dividends. The buyback price is fixed by agreement between the company and the special meeting of preferred shareholders; failing agreement, the true value is fixed by a licensed accounting expert designated by joint agreement, and failing such agreement by the president of the commercial court within whose jurisdiction the company’s registered office lies (Article 121 bis 9).

10. Buyback of Preferred Shares by the Company

The company may buy back preferred shares subject to two conditions: (i) the right and its conditions of exercise — in particular timing and price — are expressly provided for in the bylaws or in the resolution creating the preferred shares; and (ii) the buyback is conducted only after payment of all accrued and unpaid preferred dividends (Article 121 bis 10).

11. Liquidation Priority

On the dissolution and winding-up of the company, the nominal value of the preferred shares — and any accrued and unpaid preferred dividend — is paid before any repayment of the nominal value of the ordinary shares. The bylaws or the resolution of the extraordinary general assembly may further entitle preferred shareholders to a share in the liquidation surplus, by way of exception to Article 121 bis 1. Where the preferred shares are not entitled to the liquidation surplus, the preferred shareholders are entitled — by operation of law and notwithstanding any contrary provision — to recover the issue premium they paid on subscription (Article 121 bis 11).

12. Conversion of Preferred Shares into Ordinary Shares

Preferred shares may be converted into ordinary shares by resolution of the extraordinary general assembly, on a special auditors’ report, on conditions, bases, and time limits set out in the bylaws or in the resolution creating the preferred shares (Article 121 bis 12).

IX. Debentures and the Bondholders’ Assembly

1. Debentures Defined; Bondholder Versus Shareholder

A SAL may issue debentures (obligations) — negotiable, indivisible securities of a single nominal value, delivered to subscribers against amounts advanced to the company — but only after the share capital subscribed by the shareholders has been paid up in full. Directors and managers who issue, or allow the issue of, debentures in breach of the rule incur a fine ranging from one thousand to ten thousand Lebanese pounds, and the debentures are null. The bondholder is entitled to fixed interest paid at set intervals and to repayment of the principal out of the company’s assets (Articles 122 and 123). The bondholder is a creditor of the company, not a shareholder in it: he does not bear company losses, has no role in management, but recovers his debt in priority over shareholders on liquidation.

2. The Two-Times-Capital Cap on Issuance

Subject to the rules applicable to real-estate lending institutions, debentures may not be issued for an amount exceeding twice the company’s share capital — measured by reference to the financial position audited by the auditors and approved by the general assembly, with a date not more than six months prior to the issue (Article 124, as amended by Law No. 126 of 29/3/2019). The audit requirement and the six-month freshness window together impose a measurement discipline that goes beyond a simple approved-balance-sheet test.

3. Issuance Procedure

Even where the bylaws contemplate the issuance of debentures, an issue may proceed only after the general assembly has authorised it (Article 125). Before any notice of the issue, the board must publish — in the Official Gazette, an economic newspaper, and a local daily — a prospectus stating the directors’ signatures, the date of the general-assembly resolution, the number of debentures and their nominal value, the interest rate, and the dates, terms, and guarantees of repayment, on pain of a fine (Article 126). The same particulars must appear in the individual subscription form, in the debenture certificate, and in subsequent notices; a subscriber confronted with non-conforming documents may withdraw (Articles 127 and 128).

Every issue must be entered in the commercial register by the directors, on pain of fine (Article 129). Where the subscription price has not been paid in full and the calls for the balance have gone unmet, the company may sell the debentures through a stock-exchange auction at the defaulter’s expense (Article 130). Three forms of debenture beyond the ordinary type are admissible: mortgage debentures secured on company assets, lottery-redemption debentures (subject to government authorisation on the proposal of the Minister of National Economy), and debentures carrying a redemption bonus payable on amortisation (Articles 131 to 133).

Repayment of a debenture follows the conditions fixed at issue, and the company may not bring the maturity date forward or push it back — a mandatory rule protecting the bondholder against the company’s manipulation of maturity (Article 134).

4. The Bondholders’ Assembly

Notwithstanding any contrary clause, the bondholders of each issue form a single statutory body that comes into being automatically, and whose majority resolutions bind all bondholders — including those who voted against (Article 135).

After the subscription closes, the issuing company convenes the first bondholders’ assembly to approve the assembly’s by-laws and designate its representatives (Article 136). Subsequent meetings are convened by the representatives, by the company, or on the request of bondholders representing one-twentieth of the value of the debentures (Article 137); convocation is by two successive notices in the Official Gazette, an economic newspaper, and a local daily, eight days apart (Article 138). Quorum and voting follow the rules applicable to shareholders’ general assemblies (Articles 193 and 195, brought in by Article 139). The representatives are empowered to take all conservatory measures to safeguard bondholders’ rights (Article 140).

Critical resolutions — those extending repayment terms, reducing the interest rate, reducing the principal, reducing the guarantees, or in general sacrificing bondholders’ rights — require both the quorum of Article 193 §1 and a two-thirds majority of bondholders present or represented (Article 141). Representatives of the bondholders’ assembly are entitled to attend shareholders’ general assemblies and to receive the same notices as shareholders, but they may not vote in those assemblies (Article 142).

5. Protection Against Lottery Recovery

A company that has continued to pay interest, dividends, or amounts on shares, debentures, or other securities redeemable by lottery may not recover those amounts when the security is presented for repayment. Any contrary clause is of no effect (Article 143). The rule prevents the company from clawing back amounts effectively paid to a holder of a lottery-redeemable security, even where the bylaws or the issuance contract purport to authorise the clawback.

Practical Tips

At Formation

1. Verify the criminal-record qualifications of the founders before signature (Article 79). Any recent criminal record for fraud, embezzlement, drawing cheques without sufficient funds in bad faith — and any unrediscovered declaration of bankruptcy — excludes the person from participating in the formation. The verification is mandatory for the natural-person representatives of legal-entity founders as well.
2. LBP 30 million minimum capital + 25% paid up on every share, individually (Articles 83 and 84). The 2019 reform narrowed the per-share payment rule to apply share by share; an aggregate quarter payment that leaves some shares unpaid is non-conforming. Subscription forms that aggregate the quarter payment across the portfolio should be updated.
3. The pre-subscription consensual withdrawal channel (Article 85). Before any subscription by shareholders other than the founders, and during the six-month window, the founders may by unanimous resolution withdraw the deposited funds and cancel the bylaws at the notary, without recourse to the urgent-matters judge. This is a clean operational exit where circumstances change before the company is launched.

On Publication and Annual Filings

1. One-month deadline for the initial deposit; two-month deadline for the annual deposit (Articles 98 and 101). The initial publication formalities are deposited with the Commercial Register within the month following formation. The annual deposit of the six-document package (auditors’ reports + directors’ reports + general-assembly minutes and attendance sheet) is made within two months of the general assembly’s approval of the financial statements, and in any case no later than 31 December of the current year. Breach attracts an annual fine of LBP 100,000 per omitted document.
2. Social-security clearance is not required for the annual filing (Article 102). An open social-security dispute should not be allowed to delay the annual deposit of the six-document package — the statute exempts the Article 101 filing from the clearance requirement.

On Shares and Their Disposal

1. Nominative shares only — since 2016, not 2019 (Law No. 75 of 27/10/2016, as amended by Law No. 144/2019 and Law No. 260/2022). Law 75/2016 abolished the bearer share and the order share in the Lebanese SAL — and in the société en commandite par actions — and required the conversion of existing bearer and order shares into nominative form within three years from its publication on 3/11/2016, on pain of a fine equal to 50% of share capital, suspension of the rights of the holders after one year, and transfer of ownership to the Lebanese State after two years. This rule was subsequently reflected in Article 104 of the Code of Commerce as amended by Law No. 126/2019. Bylaws still drafted in legacy form that contemplate bearer or order shares should be revised; all capital-increase issuances must be in nominative form only.
2. Usufruct, bare ownership, and undivided holdings require disciplined voting allocation (Article 116). In family companies and inherited shareholdings: the usufructuary votes at the ordinary general assembly; the bare owner votes at the extraordinary general assembly; and undivided owners must designate a single representative (or apply to the court for one on the urgent-matters procedure). The allocation should be addressed in the bylaws and in any usufruct/bare-ownership instruments registered with the Commercial Register, to avoid assembly-level disputes later.
3. Double voting is unavailable for SALs incorporated after 29/3/2019 (Article 117). New bylaws should not provide for a double-voting clause. SALs incorporated before 29/3/2019 retain the privilege unless their bylaws expressly remove it; a unanimous extraordinary-general-assembly resolution is required to abolish the privilege where it is in force.

On Preferred Shares

1. The 30% cap and the restoration of voting on default (Articles 121 bis 3 and 121 bis 5). Preferred shares may not exceed 30% of the company’s nominative share capital at issue. Preferred shareholders recover their vote in three sets of circumstances: failure to pay the preferred dividend for a single year where profits were available; failure to deliver any other promised privilege; and general assemblies on changes in form, in-kind capital increases, early dissolution, or merger and demerger operations. The insider prohibition (Article 121 bis 7) extends to spouses and minor children. Both rules should be expressly cross-referenced in the bylaws and in the issuance resolution.

Conclusion and What Comes Next

This Part 1 covered the SAL from the angle of its formation (substantive and formal conditions, the constitutive assembly, nullity, civil and criminal liability for defective formation), its publication and annual filings (initial deposit at the Commercial Register, ongoing publication, the six-document annual package, sanctions), and the financial instruments the company is authorised to issue (ordinary shares, priority shares, preferred shares under Law No. 308/2001, debentures, and the bondholders’ assembly). The principle running through all of them is the protection of shareholders and creditors regardless of the identity of any of them — the SAL is a capital company, not a personal company, and it draws its credibility from procedural transparency rather than from personal acquaintance among its participants.

In Part 2 of the SAL coverage we move on to the operational life of the company: management (the board and the general managers), the general assemblies (ordinary and extraordinary), the auditors, related-party transactions, and dissolution, merger, and demerger. Part 2 covers Articles 144 to 225 of the Code of Commerce together with Book IX on merger and demerger — fifty-seven of those articles were amended by Law No. 126/2019, making Part 2 the most reform-dense Part in the SAL coverage.

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 2: Operations, Dissolution, and Mergers (Articles 144–225 + Book IX)
• 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 (1): التأسيس والوثائق — الجزء الثالث من الدليل العملي للقانون التجاري