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The Limited Liability Company — SARL (شركة محدودة المسؤولية, abbreviated «ش.م.م.» on Lebanese commercial documents) — is the most widely used corporate form in Lebanese commercial practice. SARLs combine features of partnerships (limited number of partners, intuitu personae among them, capital parts that are not freely negotiable like shares) with features of capital companies (liability limited to the contribution, no acquisition of trader status by the partners, inheritance of capital parts, no dissolution on the death of a partner). This hybrid structure is what explains the SARL’s commercial popularity: it lets natural persons incorporate a flexible company with simplified formalities and a minimum capital floor much easier than the SAL imposes.

The SARL regime was created by Legislative Decree No. 35 of 5/8/1967 on the Limited Liability Company, originally enacted as “Book VII” of Book II of the Code of Commerce. Since enactment the regime has undergone two principal amendment waves: a limited amendment in 1992 (Law No. 120 of 9/3/1992, which touched Articles 7 and 30 — the minimum-capital floor and the auditor-appointment threshold), and the substantial 2019 reform (Law No. 126 of 29/3/2019, which rewrote 24 of the 35 articles). The 2019 reform introduced structural changes on three axes: the recognition of the single-partner SARL through the new “sole partner” concept, a redesigned mechanism for the disposal of capital parts (Article 15), and an extension of the prescription period for liability claims against managers to five years (Article 20).

Amendment chronology:

• Law No. 120 of 9/3/1992 (a dedicated amendment statute, amending Articles 7 and 30) — set the minimum-capital floor at LBP 5 million, and set the threshold at which the appointment of an auditor becomes mandatory at LBP 30 million in capital.
• Law No. 126 of 29/3/2019 (a dedicated amendment statute, the most substantial reform of the regime since enactment, rewriting 24 of the 35 articles) — introduced the single-partner SARL as a recognised legal form, rebuilt the disposal-of-capital-parts regime around a three-tier preemption ladder (company → other partners → outside transferee subject to a three-quarters majority), extended the prescription period for liability claims against managers from three to five years (aligning the SARL with the SAL under Article 171 of the Code of Commerce), removed the legacy publication formalities at incorporation (registration in the Commercial Register now suffices), and recalibrated several procedural details (notice period for general assembly meetings reduced from one month to fifteen days, registration of resolutions on financial statements in the Commercial Register, etc.).

The two minimum thresholds set by the 1992 amendment — LBP 5 million as the capital floor and LBP 30 million as the trigger for mandatory auditor appointment — were not adjusted in the 2019 reform and remain in force today, even though both have lost much of their economic significance following the substantial depreciation of the Lebanese pound since 2019. The 2022 Budget Law (Law No. 10 of 15/11/2022), which raised the fixed annual lump-sum tax of the Holding and Offshore regimes from LBP 5 million and LBP 1 million respectively to LBP 50 million, did not touch the SARL framework, which operates under the ordinary income-tax regime applicable to capital companies (Article 32 of the Income Tax Law).

The 35 articles of the Decree are addressed below on ten axes: (I) the concept and distinctive features (Articles 1–4); (II) incorporation (Articles 5–13); (III) capital parts and their transmission (Articles 14–15); (IV) management (Articles 16–20); (V) assemblies and voting (Articles 21–26); (VI) capital increase and reduction (Articles 27–29); (VII) the auditor (Articles 30–31); (VIII) profits, losses, and dissolution (Articles 32–33); (IX) conversion between corporate types (Article 34); and (X) criminal sanctions (Article 35). The texts relied on are those in force after the 2019 reform; the amendment is signalled at each article in its place.

I. The Concept and Distinctive Features

The foundational definition of the SARL is set out in Article 1 of Legislative Decree No. 35 of 5/8/1967 (as replaced by Law No. 126 of 29/3/2019):

Article 1 (as replaced) — The Limited Liability Company is a commercial company formed by one partner or several partners who bear losses only to the extent of their contributions. In the case of a company incorporated by a single person, that person is called the “sole partner”. The sole partner exercises the powers vested in the partners’ assembly.

A single person may hold all of the capital parts, exercise the powers of the partners’ assembly alone, and sign all resolutions in that capacity. The single-partner SARL is a recent legal form — introduced by the 2019 reform; before 2019, Article 5 required at least three partners both at incorporation and on an ongoing basis. Practitioners working from pre-2019 conventions, and clients reading older incorporation templates, should not assume away this shift.

The SARL is governed by the laws and commercial customs and by the provisions of the Legislative Decree, and is established by official or ordinary written instrument and registered in the Commercial Register (Article 2 — not touched by the 2019 reform). This provision embodies a rule of law: the SARL is a commercial company by virtue of its form, regardless of the nature of its activity (industrial, commercial, services).

The SARL’s funding structure rests on two structural restrictions (Article 3 — not touched by the 2019 reform): (i) the partners’ capital parts may not be represented by negotiable instruments — whether registered, to order, or to bearer; and (ii) the company may not issue for its own account, by public subscription, any transferable securities or shares or debt instruments or founders’ parts or anything similar. These two restrictions enshrine the SARL’s closed-form character: capital parts are not negotiable instruments like shares, and the company does not raise funding from the general public. The contrast with the SAL is the practical core of the SARL/SAL choice: an SAL whose shares are freely transferable can mobilise a secondary market for liquidity and tap public savings through public subscription; a SARL cannot do either, but in exchange enjoys lighter governance formalities and lower capital thresholds.

Five categories of activity are excluded from the scope of what a SARL may undertake (Article 4 — not touched by the 2019 reform): (1) insurance operations; (2) savings and cooperative-economy activities; (3) scheduled air transport; (4) banking operations; (5) investment of funds for the account of third parties. The legislative ground for the exclusion is not limited liability as such — an SAL shareholder enjoys equivalent limited liability up to the value of his shares — but rather the set of additional safeguards that the SAL framework provides and the SARL framework does not: a higher minimum capital that secures a wider base of assets to absorb risk; more elaborate institutional governance (board of directors, auditors, general assemblies with deliberate quorums, mandatory disclosures); the capacity to raise capital through public subscription of shares and debt securities (the natural funding tool for projects of systemic importance); and transferable shares creating a secondary market for liquidity. Insurance companies, banks, financial institutions, and passenger-air-transport companies are accordingly incorporated exclusively as SALs (see Article 126 of the Code of Money and Credit for banks, and Article 3/1 of Decree No. 9812/1968 for insurance companies).

II. Incorporation

Nine articles (Articles 5 through 13) cover the partner count, the corporate name, the minimum capital, the conditions for valid incorporation, the rules on in-kind contributions, the five-year joint and several liability of founders, the publication formalities, the nullity sanction, and the liability for damage caused by nullity.

1. Partner Count

A SARL is formed by one person — called the sole partner — or by several partners whose number may not exceed twenty, except where capital parts have passed by inheritance. If the partner count exceeds thirty, the company must — within two years — be converted into an SAL; failing such conversion, it must be dissolved. The concentration of all capital parts in the hands of a single partner does not result in dissolution. A single-partner SARL is barred from being itself the sole partner of another single-partner SARL — a rule designed to prevent the stacking of single-partner entities under one ultimate owner for the purpose of shielding personal liability (Article 5 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

A multi-partner SARL whose capital parts come to be concentrated in a single partner’s hands has a one-year cure period to correct the breach, with the court empowered to grant an additional six months.

2. Name and Designation

A SARL bears a name determined either by reference to the subject of its enterprise or by a collective designation including the name of one or more partners. The name must appear clearly, alongside the company’s registered name, on all papers, advertisements, notices, and other documents issued by the company, together with the words “شركة محدودة المسؤولية” (Limited Liability Company) or the abbreviation “ش.م.م.“, and a statement of the company’s share capital and Commercial Register number. Breach is sanctioned by a fine ranging between the official minimum wage and twice that amount. If the breach has misled third parties as to the type of company, the provisions applicable to general partnerships are applied to determine the partners’ obligations to third parties (Article 6 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

3. Minimum Capital

The minimum capital of a SARL is five million Lebanese pounds, divided regardless of its amount into equal capital parts. If the capital falls below the minimum for any reason, the company must — within one year — restore the capital or convert into another corporate type except for the SAL. Failure to comply within the one-year window gives any interested party the right to apply for judicial dissolution, after sending a notice to the manager to remedy the breach (Article 7 of Legislative Decree No. 35 of 5/8/1967, as amended by Law No. 120 of 9/3/1992 and Law No. 126 of 29/3/2019).

Two practical observations on Article 7: (i) the LBP 5 million floor has not been updated since 1992 and no longer reflects a meaningful economic threshold given the depreciation of the Lebanese pound since 2019. The matter is purely legislative and was not addressed by the 2019 reform. (ii) The exclusion of conversion to SAL as a corrective option follows a reverse logic: the SAL requires a substantially higher minimum capital, so a SARL that is already unable to restore LBP 5 million is a fortiori unable to finance a conversion to SAL.

4. Conditions for Definitive Incorporation

A SARL is not definitively incorporated until three conditions are met: (i) the capital parts have been allocated among the partners with each partner’s count fixed, or assigned in full to the sole partner; (ii) the value of the parts has been fully paid up (cash payment in full, not in instalments); (iii) the paid-up amounts have been deposited in a Lebanese bank. The founders must expressly declare in the company’s bylaws that all three conditions have been satisfied. The manager may not withdraw the deposited amounts before the company has been registered in the Commercial Register. If registration does not occur within six months from the date of the first deposit, each partner may apply to the summary-matters judge for authorisation to recover what he has paid (Article 8 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

5. Contributions in Kind

Partners’ contributions may be made in cash or in kind, but labor or services contributions (إجارة الخدمة أو الصناعة) may not be counted as contributions to the capital. Where contributions are made in kind, their value must be fixed in the company’s bylaws on the basis of a report by an expert or experts appointed by the President of the Court of First Instance of the district in which the company has its registered office. Where there is more than one partner, the experts’ report is placed at the disposal of the prospective partners, who may withdraw their undertaking to participate if the contributing partner’s own valuation exceeds the expert’s valuation by more than twenty per cent (Article 9 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

The 2019 reform made two adjustments: (i) the President of the Court of First Instance is now specifically designated as the appointing authority for the expert (the pre-2019 text referred more broadly to “the court”); (ii) the right to withdraw the participation undertaking is now limited to the multi-partner case. The 20 per cent over-valuation threshold remains unchanged.

6. Five-Year Joint and Several Liability of Founders

Contributors of in-kind contributions, the first managers, and the experts are jointly and severally liable for five years vis-à-vis third parties for the inaccuracy of the valuation of the in-kind contributions at the time of the company’s incorporation. The same liability extends to any new partner who approves an annual balance sheet or inventory fixing the value of the contributions, or of any new in-kind contributions, at a figure higher than the actual value — within five years from the date of signing the balance sheet or inventory (Article 10 of Legislative Decree No. 35 of 5/8/1967, not touched by the 2019 reform).

7. Publication and Registration

A SARL is incorporated by registration in the competent Commercial Register; no other publication formality applies (Article 11 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019). The pre-2019 regime required SAL-style publication in the Official Gazette plus two daily newspapers; the 2019 reform abolished those formalities. Practitioners and clients working from older incorporation templates should not include the legacy publication steps.

8. Nullity and Its Consequences

Any SARL incorporated in breach of the conditions in the preceding articles is null and without effect as between the partners; but the sole partner or the partners may not invoke the nullity against third parties (Article 12 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

The substantive rule is that nullity is relative in favour of third parties — the partners (and the sole partner) cannot invoke their own breach of the incorporation rules to evade their obligations towards creditors.

9. Liability for Damage Caused by Nullity

The sole partner, the partners who caused the nullity, the first managers, and the founders are jointly and severally liable vis-à-vis third parties and the other partners for damage caused by the nullity. An action for nullity is not admissible if its cause has been remedied before the action is filed, and the cause may be remedied during the proceedings and before judgment (not only before the first-instance judgment — a widening of the cure window). Where there is more than one partner, if removing the nullity requires convening the partners’ assembly, the nullity proceedings are stayed from the date of the formal convening of the assembly until the assembly’s decision is issued. Nullity and liability actions are subject to the prescription rules set out for SAL nullities (Article 13 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

III. Capital Parts and Their Transmission

1. Inheritance and the Continuity Rule

Capital parts of the sole partner or the partners pass by inheritance to their heirs. Where there is more than one partner, the bylaws may include an express clause giving the company the right not to accept the heirs (or some of them) as partners, against payment of the heirs’ rights as determined by agreement or by the court. The option period may not exceed two months from the date of death. The company is not dissolved by the bankruptcy or judicial interdiction of the sole partner or of any partner; the legal representative takes the partner’s place in either case (Article 14 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

The continuity rule — the company is not dissolved by the personal circumstances of any partner (death, bankruptcy, judicial interdiction) — is a defining SARL feature that pulls the regime towards the capital-companies side of Lebanese commercial law rather than the partnership side.

2. The Three-Tier Preemption Ladder on Disposal

Article 15 sets out a structured three-tier preemption ladder for the disposal of capital parts, organised around five rules (Article 15 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019):

1. Proof and notice. A disposal is established by official or ordinary written instrument and notified to the company’s manager and to each of the partners.

2. Company’s right of first refusal (tier one). The company has a right of first refusal to purchase the entire capital parts to be disposed of to a person from outside the partners, provided that the company expresses its intention to purchase within fifteen days of being notified of the disposal project through any of its managers. The disposal project must mandatorily include the name of the prospective purchaser, the terms of sale, and the price. The company must then exercise its purchase right within fifteen days of expressing its intention.

3. Partners’ right of first refusal (tier two). If the company does not exercise its right, any partner may purchase the entire capital parts within thirty days from the date of being notified of the company’s refusal. The manager must provide all the partners with a copy of the disposal project. If more than one partner exercises the right, the capital parts are distributed among them in proportion to each partner’s share in the company’s capital.

4. Three-quarters majority for disposal to an outside transferee. In any event, no disposal of capital parts to a person outside the company (أجنبي عنها — meaning a person from outside the partners, not by reference to nationality) may take place except with the consent of partners representing at least three quarters of the capital.

5. Single-partner exception. The rules in this article do not apply where there is a sole partner (no right of first refusal applies because there are no other partners).

The structured three-tier ladder (company → partners → outside transferee subject to three-quarters approval) and the mandatory disclosure of purchaser identity, terms, and price both date from the 2019 reform; pre-2019 capital-parts-disposal templates may not reflect the current sequencing or disclosure obligations and should be revisited before a disposal is documented.

IV. Management

1. Appointment, Powers, and Removal of Managers

The SARL is managed by the sole partner, or by one or more managers chosen from among the partners or from outside the partners, appointed in the bylaws or by a subsequent instrument, for a fixed or unlimited term, provided that they are natural persons. The manager or managers are vested with all the powers necessary to conduct the company’s business in the ordinary course, unless the bylaws provide otherwise. Notwithstanding any provision to the contrary, the managers (or any of them) may be removed by decision of the sole partner or of the partners’ assembly, or by court order on the ground of legitimate cause. Removal by the sole partner or by the partners’ assembly without legitimate cause entitles the removed manager to claim damages (Article 16 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

This is a mandatory-public-order rule that severs the power of removal (unrestricted) from the duty to compensate (variable by reference to whether legitimate cause exists). The contrast with the SAL is substantive: in an SAL, the removal of a board member is unrestricted and does not give rise to damages (Article 150 of the Code of Commerce); in a SARL, removal without legitimate cause triggers a damages claim.

2. Statutory Reserve

The managers are required each year to set aside ten per cent of the net profits to form a statutory reserve until it equals fifty per cent of the share capital (Article 17 of Legislative Decree No. 35 of 5/8/1967, not touched by the 2019 reform). This obligation is proportionally heavier than the SAL counterpart (10 per cent until one-third of capital) and reinforces the position of creditors in a corporate form whose capital is limited.

3. Prohibition on Loans and Guarantees to Managers and Partners

The manager or managers, and the sole partner or partners, are prohibited — on pain of nullity — from obtaining from the company loans, sureties, or guarantees for themselves or their spouses, ascendants, or descendants, even through nominees (Article 18 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

4. The Manager-Liability Regime

The manager-liability regime is organised around five points (Article 19 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019):

1. Individual or joint liability. The managers are individually or jointly liable, depending on the circumstances, towards the company and third parties, for breaches of the provisions of the Legislative Decree, of the bylaws, and for management faults.

2. Allocation of liability among co-managers. Where several managers participate in the same acts, the court determines the share of damages to be borne by each.

3. Derivative action (action sociale ut singuli). The sole partner or any partner may bring a liability action against the managers on the company’s behalf to seek full compensation for the damage caused to the company.

4. Nullity of restrictive bylaws clauses. Any clause in the bylaws that conditions the bringing of such an action on prior approval or authorisation by the partners’ assembly, or that purports to waive in advance the exercise of this right, is deemed unwritten.

5. No assembly release. No resolution of the partners’ assembly purporting to release the managers from liability for management faults may be relied upon.

Note the contrast with the SAL: in an SAL, the general assembly’s discharge resolution clears the directors’ liability for matters the assembly was in a position to know (Article 169 of the Code of Commerce); in a SARL, the partners’ assembly has no power to discharge the managers from management faults — a calibration that strengthens the protection of the company and the partners.

5. Five-Year Prescription on Liability Claims

Liability actions under Article 19 are time-barred after five years from the date of the harmful acts, if those acts were apparent, or from the date of their discovery, if they were concealed. Where one of the acts constitutes a felony, the limitation period is extended to ten years from the date of the act (Article 20 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

The five-year period is recent — it was set by the 2019 reform, replacing a legacy three-year period; the SARL prescription regime now aligns with the SAL under Article 171 of the Code of Commerce.

V. Assemblies and Voting

1. Annual General Assembly

The manager or managers prepare at the end of each year a report on the company’s business and financial statements, communicate them to the partners, and convene them within six months from the close of the financial year to an annual general assembly at which the managers’ acts are approved. At least twenty days before the date set for the assembly, the originals of the full set of documents must be deposited at the company’s registered office, together with the auditor’s report where applicable. Every partner has the right to inspect the documents and to address written questions to the manager, to be answered at the assembly meeting. Every partner has the further right to inspect, at any time, the records and supporting documents relating to the company’s business for the three preceding years. Any clause to the contrary is deemed unwritten (Article 21 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

2. Decision-Making by Written Consultation

The bylaws may provide for decision-making by written consultation — the manager sends each partner the text of the resolution and the partner expresses his opinion in writing. This option does not extend to matters falling under Article 21 (approval of the financial statements), which require a physical general assembly. The carve-out is grounded in the substantive nature of the accounts discussion, which calls for in-person engagement on objections, challenges, and clarifications (Article 22 of Legislative Decree No. 35 of 5/8/1967, not touched by the 2019 reform).

3. Notice of Meetings

The convening of assemblies, where there is more than one partner, is effected either by a notice published in two local daily newspapers, or by registered letters, or by any other means specified in the company’s bylaws. The notice must be given at least fifteen days before the date set for the meeting, unless the bylaws provide otherwise. The notice is issued by the manager (or by any of the managers if there are several), failing which by the auditor where one is appointed. If all of them fail to act, any partner or partners representing at least one quarter of the capital may apply to the court for the appointment of a person to convene the assembly and set its agenda (Article 23 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

The 15-day notice period (reduced from one month before 2019) and the option to use “any other means specified in the bylaws” — allowing electronic notice if the bylaws provide for it — are recent enough that pre-2019 bylaws may still require updating.

4. Voting Rights

Each partner is entitled in the assemblies to a number of votes equal to the number of capital parts he holds or represents. Unless the bylaws provide otherwise, a partner may not delegate his representation to a person outside the partners. A partner may not delegate the representation of part of his capital parts to another person and personally represent the remainder. Any clause to the contrary is deemed unwritten (Article 24 of Legislative Decree No. 35 of 5/8/1967, not touched by the 2019 reform).

5. Quorums and the Single-Partner Exception

Decisions of the assemblies or written consultations are taken by partners representing at least half of the capital. If this majority is not reached, and absent a contrary provision in the bylaws, the partners are summoned or consulted a second time, and decisions are then taken by a majority of the votes cast regardless of the capital represented. Where the company has a sole partner, the sole partner signs alone all decisions. Decisions relating to the financial statements are recorded in minutes registered in the Commercial Register (Article 25 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

6. Amendment of the Bylaws and Reserved Matters

Two matters require unanimity: changing the nationality of the company and imposing on a partner an increase in his contributions or obligations. No other amendment of the bylaws is valid unless approved by a majority representing at least three quarters of the capital (Article 26 of Legislative Decree No. 35 of 5/8/1967, not touched by the 2019 reform). The rule protects each partner from any forced expansion of his commitments while admitting the possibility of amending the bylaws by a reinforced majority.

VI. Capital Increase and Reduction

1. Cash Subscription on Increase

In the case of a capital increase by way of subscription by the partners with cash contributions, the subscription amounts are deposited in a Lebanese bank. The manager may not withdraw the amounts until the new capital parts are fully paid up and the capital increase has been registered in the Commercial Register. If the registration is not effected within six months of the first deposit, the last paragraph of Article 8 applies (recourse to the summary-matters judge for recovery of the amounts paid) (Article 27 of Legislative Decree No. 35 of 5/8/1967, not touched by the 2019 reform).

2. In-Kind Subscription on Increase

Where a capital increase is wholly or partially effected through in-kind contributions, the provisions of Articles 9 and 10 apply (expert valuation, 20 per cent withdrawal threshold, five-year joint and several liability), and the increase is registered in the Commercial Register (Article 28 of Legislative Decree No. 35 of 5/8/1967, not touched by the 2019 reform). The reference back to Articles 9 and 10 ensures that every expansion of the capital through in-kind contributions is subject to the same safeguards as the original in-kind contributions made at incorporation.

3. Capital Reduction and the Creditors’ Opposition Right

The partners’ assembly may decide a capital reduction by the majority required for amendment of the bylaws (three quarters of the capital) without prejudice to the equality of the partners. Where an auditor has been appointed, the project of reduction must be communicated to him so that he may give his opinion on the grounds and conditions of the reduction at the time of the assembly. If the assembly decides to reduce the capital for a reason other than losses, the resolution is registered in the Commercial Register and published in two local newspapers, and each creditor has the right to oppose the reduction within two months of the date of the last publication, before the court of the company’s registered office. The court may, according to the circumstances, either dismiss the opposition or require the company to provide guarantees for the rights of the opposing creditors. The reduction procedures may not begin before the opposition period has lapsed. The company is prohibited as a general rule from purchasing its own capital parts, with one narrow exception: if the assembly decides a capital reduction for a reason other than losses, it may authorise the manager to purchase a specified number of capital parts from the partners for the purpose of cancelling them (Article 29 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

A final clause of Article 29 disapplies Articles 21, 23, 26, and 29 to a single-partner SARL — a logical simplification given the absence of a partners’ assembly and notice mechanism. In a single-partner SARL, the manager prepares the annual business report and financial statements, and the sole partner approves the accounts after reviewing the auditor’s report where applicable, within six months from the end of the financial year. The sole partner may not delegate his powers as partner to a third party.

VII. The Auditor

1. When the Appointment of an Auditor Becomes Mandatory

The appointment of an auditor is optional as a general rule in a SARL (by decision taken with the majority of Article 25), and becomes mandatory in four cases (Article 30 of Legislative Decree No. 35 of 5/8/1967, as amended by Law No. 120 of 9/3/1992 and Law No. 126 of 29/3/2019):

• (a) if the partner count exceeds twenty;
• (b) if the company’s capital reaches thirty million Lebanese pounds;
• (c) if appointment is requested by one or more partners representing at least one fifth of the capital (20 per cent);
• (d) (added in 2019) for a single-partner SARL: if the company’s capital reaches thirty million Lebanese pounds.

The LBP 30 million capital threshold has not been adjusted since 1992 and is today substantially eroded by the depreciation of the Lebanese pound, with the result that the auditor-appointment trigger fires for capital amounts that no longer represent meaningful economic thresholds.

2. Eligibility and the Five-Year Post-Termination Restriction

The auditor is chosen from among the persons registered in the Schedule of Experts. The following may not be appointed as auditors: (i) the partners and the sole partner and the managers, and their spouses, ascendants, and descendants; (ii) persons who receive periodic salaries from the company or its manager, and their spouses, ascendants, and descendants (Article 31 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

The text imposes a post-termination restriction: for five years after termination of his auditor functions, the auditor may not be appointed as a manager of the company in which he served, nor may he be appointed as a manager, board member, or auditor of companies holding ten per cent of the capital of that company, or in which that company holds ten per cent of the capital. The provisions applicable to the auditors of an SAL apply to SARL auditors to the extent compatible with the specific rules in Legislative Decree No. 35/1967.

VIII. Profits, Losses, and Dissolution

1. Recovery of Fictitious Distributions

Profit distributions paid to the partners may be recovered when they are not founded on actual realised profits. The recovery action is subject to five-year prescription running from the date set for the distribution of the dividend (Article 32 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019). The recovery rule is a structural protection of the share capital against draining by fictitious distributions.

2. Three-Quarters Loss of Capital and the Three-Option Decision

If the SARL loses three quarters of its capital, the partners must decide within four months of approving the accounts that revealed the loss whether to dissolve the company. If they do not decide to dissolve by the majority required for amendment of the bylaws (three quarters of the capital), they must immediately reduce the capital by the amount of the loss, unless that majority decides to reconstitute the capital to its original level. The decision is published in two local newspapers and registered in the Commercial Register. If the partners do not take a decision within the period, any interested party may apply for judicial dissolution of the company (Article 33 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

The reconstitution path — restoring capital to its original level through fresh contributions — was added in 2019; before that, the only options were dissolution or capital reduction. The reconstitution route is easier on a fundamentally profitable company facing a transient loss, and practitioners advising a company through a three-quarters-loss event should consider it alongside the legacy options.

IX. Conversion Between Corporate Types

The conversion of a SARL into a general partnership, simple commandite, or commandite by shares requires the unanimity of the partners. Conversion into an SAL may, by contrast, be decided by the majority required for amendment of the bylaws (three quarters of the capital), provided that the partners have approved the accounts of the two preceding financial years. If it appears from the accounts after their approval that the company’s net assets exceed fifty million Lebanese pounds, conversion to an SAL may be decided by a majority representing half of the capital, after considering the auditor’s report confirming the accuracy of the accounts. A change of corporate type effected in breach of the article is null (Article 34 of Legislative Decree No. 35 of 5/8/1967, as replaced by Law No. 126 of 29/3/2019).

The LBP 50 million net-assets threshold for the facilitated conversion was set by the 2019 reform — raised from LBP 3 million in the legacy text. Companies whose net assets sit between LBP 3 million and LBP 50 million no longer benefit from the half-of-capital majority and require the full three-quarters threshold like other bylaws amendments.

A brief practical note on the consequences of SARL→SAL conversion: the resulting SAL is subject to Law No. 75 of 27/10/2016 (as amended by Law No. 144/2019 and Law No. 260/2022), which prohibits Lebanese SALs from issuing bearer or order shares and requires all shares to be nominative. The Law-75/2016 regime does not apply to the SARL while it remains a SARL — SARL capital parts are by statute not negotiable instruments and cannot be issued in any form (Article 3 of Legislative Decree No. 35/1967) — but the resulting SAL must be structured to issue only nominative shares from the moment of conversion.

X. Criminal Sanctions

Six categories of conduct attract the penalties for fraud prescribed in the Penal Code (Article 35 of Legislative Decree No. 35 of 5/8/1967, not touched by the 2019 reform):

1. The founders who insert into the company’s bylaws a false declaration regarding the allocation of capital parts among the partners and the payment in full of those capital parts.
2. The first partners and the managers who open — directly or through intermediaries — a public subscription for any transferable securities, shares, or debt instruments (in breach of Article 3).
3. Any person who gives in-kind contributions a valuation exceeding their actual value by 20 per cent through fraudulent manoeuvres (in breach of Article 9).
4. Any person who gives in-kind contributions through fictitious profits, without an underlying balance sheet and profit-and-loss account, or through a balance sheet and profit-and-loss account not consistent with reality.
5. The managers and the partners who create or attempt to create an artificial majority in a partners’ assembly.
6. The manager who withdraws the contributions deposited in the bank before incorporation is complete (in breach of Article 8).

The provisions of Article 35 do not preclude the application of the rules of ideal concurrence of offenses (اجتماع الجرائم المعنوي) to qualify the acts under a more severe characterisation, in particular in the case of bankruptcy (application of the rules on negligent or fraudulent bankruptcy in Book V of the Code of Commerce).

A practical observation on the structure of Article 35: it groups together incorporation-phase offences (paragraphs 1 and 6), operational offences (paragraphs 2 and 5), and fraud-on-capital offences (paragraphs 3 and 4). The manager appears in most of the paragraphs — a reflection of his central role and of the doubled criminal exposure that attaches to this office in the SARL form.

Practical Tips

At incorporation:

1. A single-partner SARL may not be the sole partner of another SARL. Article 5 prohibits this stacking. Plan the company’s place in the group structure before committing to the corporate form.
2. Minimum capital of LBP 5 million is a legal floor that no longer reflects economic reality. Going well above this floor improves credibility with banks and commercial counterparts.
3. Bank deposit before registration is mandatory. Article 8 requires the full deposit of cash contributions in a bank before registration. Withdrawing any amount before registration in the Commercial Register triggers criminal liability under Article 35.
4. In-kind contributions must be valued by a court-appointed expert. Article 9 requires an expert appointed by the President of the Court of First Instance. Agreeing on a value without an expert exposes the contributors, the first managers, and the experts to five-year joint and several liability under Article 10.
5. Publication is no longer required at incorporation. The 2019 reform of Article 11 makes registration in the Commercial Register sufficient. Avoid taking on publication formalities that are not required by law.

During the company’s operation:

1. Removal of a manager without legitimate cause triggers damages. Article 16 preserves the unrestricted power of removal but mandates compensation in the absence of legitimate cause. Address the mechanics of ending a manager’s tenure in the bylaws before any dispute arises.
2. The prohibition on loans and guarantees is absolute. Article 18 bars the manager, the sole partner, the partners, and their close relatives from obtaining loans, sureties, or guarantees from the company — including through nominees. Breach triggers nullity of the transaction.
3. The prescription period is now five years, not three. Following the 2019 amendment to Article 20, liability actions against managers prescribe in five years (from the date of the act or its discovery). Re-check the date of the harmful acts before assuming an action is time-barred.
4. General assembly notice is now fifteen days, not one month. Article 23 shortened the notice period in 2019. Make sure the bylaws are consistent with the new period, and that electronic means of convening — if intended — are explicitly provided for.

In times of crisis and conversion:

1. Three-quarters loss of capital triggers a four-month decision window. Article 33 offers three options (dissolution, capital reduction, or reconstitution to the original level). The third option is new in 2019 and opens a path to restore the financial position.
2. Conversion to SAL is facilitated at LBP 50 million in net assets. Article 34 raised the threshold from LBP 3 million to LBP 50 million. Only companies whose net assets exceed this floor benefit from the facilitated half-of-capital majority.
3. Watch the four triggers for mandatory auditor appointment. Article 30 requires an auditor if the partner count exceeds twenty, if capital reaches LBP 30 million, if a partner representing 20 per cent of the capital so requests, or — for a single-partner SARL — if capital reaches LBP 30 million.

Integration with Other Laws

In addition to Legislative Decree No. 35/1967, the following components of the Lebanese legal framework apply to the SARL:

1. The Code of Commerce — the general framework on commercial companies in Book II. The SAL chapter of Book II is applied to the SARL only where the Decree expressly cross-refers to it: the SAL nullity prescription regime is brought in by Article 13 of the Decree, and the SAL auditor provisions are brought in by Article 31 of the Decree to the extent compatible with the specific SARL rules. Several other SAL provisions are referenced in the analysis above as contrast points that highlight the structural differences between the two forms (Article 150 on board removal, Article 169 on discharge resolutions, Article 171 on prescription periods for liability claims) — these are not applied to the SARL by the Decree. See further The Joint Stock Company — Part 1: Formation, Documents, and Securities (Articles 77–143) and The Joint Stock Company — Part 2: Operations, Dissolution, and Mergers (Articles 144–225 + Book IX).
2. The Income Tax Law — Article 32 imposes the 17% rate on capital-company profits, which applies to the SARL (the SARL is taxed as a capital company under the general regime, not under a special lump-sum tax regime like Holding or Offshore).
3. The Penal Code — Article 35 of Legislative Decree No. 35/1967 refers to the penalties for fraud in the Penal Code for the six categories of conduct enumerated there. The rules on ideal concurrence of offenses (اجتماع الجرائم المعنوي) apply where the conduct attracts a more severe characterisation, in particular in the case of bankruptcy (Book V of the Code of Commerce — rules on negligent and fraudulent bankruptcy).
4. The Code of Money and Credit — Article 126 reserves banking operations to the SAL form and excludes SARLs from the banking sector (in conjunction with Article 4 §4 of Legislative Decree No. 35/1967).
5. Decree No. 9812 of 4/5/1968 on insurance companies — Article 3/1 reserves insurance operations to the SAL form and excludes SARLs from the insurance sector (in conjunction with Article 4 §1 of Legislative Decree No. 35/1967).
6. Law No. 75 of 27/10/2016 (as amended by Law No. 144 of 16/10/2019 and Law No. 260 of 5/8/2022) — abolished bearer and order shares for Lebanese SALs and requires nominative form only. The regime does not apply to the SARL while it remains a SARL — SARL capital parts are by statute not negotiable instruments and cannot be issued in any form (Article 3 of Legislative Decree No. 35/1967). It applies, however, from the moment a SARL is converted into an SAL under Article 34 of the Decree: the resulting SAL must issue only nominative shares.

Conclusion

This Part Five has covered the SARL regime across the 35 articles of Legislative Decree No. 35 of 5/8/1967. The SARL is the most widely used corporate form in Lebanese commercial practice — a closed-form vehicle combining limited liability with simplified governance, and now (since the 2019 reform) available in single-partner form. A clear grasp of the operative rules — the three-tier preemption ladder on capital-parts disposal, the five-year prescription on liability actions against managers, the four-month decision window on three-quarters loss of capital, the auditor-appointment triggers, the LBP 50 million threshold for facilitated conversion to SAL — is essential to sound advice at every point in the company’s life.

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)
• The Joint Stock Company — Part 2: Operations, Dissolution, and Mergers (Articles 144–225 + Book IX)
• Convertible Bonds — SAL Supplement (Legislative Decree 54/1977)
• Holding Companies — Legislative Decree 45/1983
• Offshore Companies — Legislative Decree 46/1983

Arabic original: الشركة المحدودة المسؤولية — الجزء الخامس من الدليل العملي للقانون التجاري