Blog

Limited liability companies (SARL) in Lebanon are governed by Legislative Decree No. 35 of 5 August 1967. Law No. 126 of 29 March 2019 amended twenty-four of its thirty-five articles, and one of its principal changes was to allow the company to be formed by one person, called the “sole partner”.

This article covers only the rules that concern a company with a sole partner or that operate differently because of one, citing the article each answer rests on. The general SARL regime, article by article, is in Part 5 of the Practical Guide to Lebanese Commercial Law.

1. Who the sole partner is and how the company is formed

Can one person form a limited liability company?

Yes. A limited liability company is formed “by one or several partners who bear the losses only up to the amount of their contributions”, and where it is formed by one person that person is called the “sole partner” (Article 1 of Legislative Decree No. 35/1967). The text says “one person” without confining that person to natural persons, whereas it expressly requires managers to be natural persons (Article 16 of Legislative Decree No. 35/1967).

What powers does the sole partner hold within the company?

The sole partner exercises the powers vested in the partners’ assembly (Article 1 of Legislative Decree No. 35/1967). The sole partner may not delegate to a third party the powers held in the capacity of partner (Article 29 of Legislative Decree No. 35/1967).

What is the minimum capital?

The capital may not be less than five million Lebanese pounds and, whatever its amount, is divided into equal capital parts (Article 7 of Legislative Decree No. 35/1967).

When is the company definitively incorporated?

The company is not definitively incorporated until the capital parts have been assigned in full to the sole partner, their value paid up in full and the amounts paid deposited with a bank, and the bylaws must expressly declare that these conditions have been met. The manager may not withdraw the deposited amounts before the company is registered in the Commercial Register; if registration has not taken place within six months of the first deposit, the partner may apply to the summary-matters judge for leave to recover what was paid (Article 8 of Legislative Decree No. 35/1967).

Can the sole partner’s contribution be in kind?

Contributions may be in cash or in kind, but labour or services contributions may not be counted as contributions to the capital. Where there is an in-kind contribution, its value must be fixed in the bylaws with the opinion of one or more experts appointed by the president of the first-instance court of the district of the company’s head office, to verify the valuation (Article 9 of Legislative Decree No. 35/1967). Those who make in-kind contributions, the first managers and the experts are jointly and severally liable to third parties, for five years from incorporation, for any inaccuracy in that valuation (Article 10 of Legislative Decree No. 35/1967).

Is there any publication formality at incorporation other than registration in the Commercial Register?

No. The company is evidenced by an official or ordinary written instrument and is registered in the Commercial Register (Article 2 of Legislative Decree No. 35/1967); apart from that registration, it is subject to no other publication formality at incorporation (Article 11 of Legislative Decree No. 35/1967).

Which activities may not be the company’s object?

The company may not have as its object insurance operations, thrift and savings schemes, scheduled air transport, banking operations, or the investment of funds for the account of third parties (Article 4 of Legislative Decree No. 35/1967).

How is the company named, and what must appear beside its name?

The company is named after its object or by a collective designation containing the name of one or more partners. The text does not require the words “limited liability company” or “SARL” to be part of the name; it requires them to appear clearly beside the name on all papers, advertisements, bulletins and other documents issued by the company, together with the amount of its capital and its Commercial Register number. Breach is punished by a fine of between one and two times the official minimum wage, and where the breach misleads third parties as to the type of company, the rules on general partnerships may be applied to determine the partners’ obligations (Article 6 of Legislative Decree No. 35/1967).

2. The sole partner’s decisions and the annual accounts

How does the sole partner take decisions?

Where the company has only a sole partner, the sole partner signs the decisions alone. Decisions concerning the financial statements are recorded in minutes registered in the Commercial Register (Article 25 of Legislative Decree No. 35/1967). This does not displace the registration that other articles require, such as a capital increase (Articles 27 and 28 of Legislative Decree No. 35/1967) and the decision taken on a loss of three quarters of the capital (Article 33 of Legislative Decree No. 35/1967).

Is a partners’ assembly held in a single-partner company?

Articles 21, 23, 26 and 29 do not apply where the company has a sole partner. In that case the manager draws up a report on the company’s business and its annual financial statements, and the sole partner approves the accounts within six months of the end of the financial year, after reviewing the auditor’s report where there is one (Article 29 of Legislative Decree No. 35/1967).

What reserve must be set aside each year?

The managers must set aside each year ten per cent of the net profits to build a reserve equal to fifty per cent of the capital (Article 17 of Legislative Decree No. 35/1967).

What happens if three quarters of the capital are lost?

Within four months of the approval of the accounts showing the loss, it must be decided whether the company is to be dissolved. If dissolution is not decided by the majority required to amend the bylaws, the capital must immediately be reduced by the amount of the loss, unless that majority decides to reconstitute the capital to its original level. The decision adopting any of these courses is published in two local newspapers and registered in the Commercial Register.

If no decision is taken within that period, any interested person may apply to the court for the company’s dissolution (Article 33 of Legislative Decree No. 35/1967). Since the sole partner exercises the powers of the partners’ assembly, the sole partner takes this decision.

3. The auditor

When is the appointment of an auditor mandatory?

Where the company has a sole partner, the appointment of an auditor is mandatory if the company’s capital reaches thirty million Lebanese pounds (Article 30 of Legislative Decree No. 35/1967).

Who may not be appointed auditor?

The auditor is chosen from the persons entered on the roll of experts. The sole partner, the managers and their spouses, ascendants and descendants may not be appointed auditor, nor may persons who receive periodic remuneration from the company or its manager, or their spouses, ascendants and descendants (Article 31 of Legislative Decree No. 35/1967).

4. Management and the manager’s liability

Who manages a single-partner company?

Management is entrusted to the sole partner or to one or more managers, whether or not partners, appointed in the bylaws or by a later instrument for a fixed or indefinite term, provided they are natural persons. Notwithstanding any clause to the contrary, managers may be removed by decision of the sole partner or by court order where there is a legitimate ground; if the sole partner removes a manager without a legitimate ground, the manager may claim damages (Article 16 of Legislative Decree No. 35/1967).

May the sole partner or the manager obtain a loan or guarantee from the company?

No. The manager and the sole partner are each prohibited, on pain of nullity, from obtaining from the company loans, guarantees or sureties for themselves or for their spouses, ascendants or descendants, even under assumed names (Article 18 of Legislative Decree No. 35/1967).

What is the manager liable for, and within what time must an action be brought?

Managers are liable, individually or jointly and severally according to the circumstances, towards the company and third parties for breaches of the Decree or of the bylaws and for their faults in management. The sole partner may bring the liability action against the managers on the company’s behalf for full compensation of the damage (Article 19 of Legislative Decree No. 35/1967). The right to bring the action lapses five years after the harmful acts if they were apparent, or after their discovery if they were concealed, and ten years where the act is a felony (Article 20 of Legislative Decree No. 35/1967).

5. The capital parts and their transfer

Do the transfer restrictions of Article 15 apply to the sole partner’s capital parts?

No. The rules of Article 15 on the transfer of capital parts, namely the company’s right of first refusal, then the partners’, and the approval of partners representing three quarters of the capital for a transfer to an outsider, do not apply where there is a sole partner (Article 15 of Legislative Decree No. 35/1967). Once part of the capital parts has been transferred, the company becomes a multi-partner company and later transfers are subject to Article 15.

What happens on the sole partner’s death, bankruptcy or interdiction?

The sole partner’s capital parts pass to the heirs. The company is not dissolved by the sole partner’s bankruptcy or interdiction; in either case the legal representative steps into the sole partner’s place (Article 14 of Legislative Decree No. 35/1967).

May a single-partner company be the sole partner of another company?

A limited liability company with a sole partner may not be the sole partner of another limited liability company. Where that situation arises because the capital parts of a multi-partner company have come into the hands of one partner, the sole partner must regularise the position within one year; any interested person may apply for dissolution one year after all the capital parts came into one partner’s hands, the court may in all cases allow six months to regularise, and the right to apply for dissolution lapses if the cause is removed within the time allowed (Article 5 of Legislative Decree No. 35/1967).

Is a multi-partner company dissolved if all its capital parts come into one partner’s hands?

No. The concentration of all the capital parts in one partner’s hands does not dissolve or end the company (Article 5 of Legislative Decree No. 35/1967); it continues as a single-partner company.

6. Where limited liability stops

Does the company shield the sole partner’s personal assets in all cases?

The rule is that a partner bears the losses only up to the amount of the contribution (Article 1 of Legislative Decree No. 35/1967). The Decree itself, however, imposes personal liability in certain situations, among them the following.

Where the omission of the particulars that must appear beside the company’s name misleads third parties as to the type of company, the rules on general partnerships may be applied to determine the partners’ obligations (Article 6 of Legislative Decree No. 35/1967).

Where the company is formed contrary to the conditions set out in the articles preceding Article 12, it is null, although the sole partner may not invoke that nullity against third parties (Article 12 of Legislative Decree No. 35/1967). Once nullity is declared, the sole partner, any partners who caused the nullity, the first managers and the founders are jointly and severally liable towards third parties and the other partners for the damage resulting from it (Article 13 of Legislative Decree No. 35/1967).

The maker of an in-kind contribution is jointly and severally liable with the first managers and the experts for an inaccurate valuation, as set out above (Article 10 of Legislative Decree No. 35/1967). Where the sole partner manages the company personally, the sole partner is subject to the liability of managers (Article 19 of Legislative Decree No. 35/1967).

Related articles

• The Limited Liability Company: Part 5 of the Practical Guide to Lebanese Commercial Law
• How to set up a company in Lebanon
• Comparing the SAL, holding, offshore and SARL

Legal references

• Legislative Decree No. 35 of 5 August 1967 on the limited liability company.
• Law No. 126 of 29 March 2019 (amending the Code of Commerce and adding new provisions).