Commercial Companies Flashcards

Commercial Companies

• A company is defined as a contract involving two or more persons who pool contributions to carry out an activity with the aim of sharing profits and losses.
• In some cases, a company can be formed by a unilateral act of will (e.g., limited liability company, offshore company).
• A company has both contractual and institutional aspects, stemming from its legal personality.

Distinction Between Company, Association, and Cooperative

• Association: A group of persons not seeking to make profits (i.e., anything added to a person's assets).
• Cooperatives: Aim to save expenses and are considered associations, not companies.

Distinction Between Commercial and Civil Companies

• Civil Company: Purpose is not to carry out commercial acts (e.g., medicine, law, engineering, accounting).
• Commercial Company: Purpose is to carry out commercial acts.
• Exception: Limited liability companies and joint-stock companies are considered commercial companies even if their purpose is not commercial.

Common Rules of Commercial Companies

Chapter One: Contractual Aspect

• A company is formed as a contract, requiring fulfillment of general contract conditions and specific company contract conditions.

Section 1: General Conditions for Contract Formation

• Conditions include consent, object, cause, form (for certain contracts), and capacity.
• Remark 1: Number of partners: at least two are required, but Lebanese law allows SARL (Limited Liability Company) and offshore companies with a single will.
  • Fictitious companies may be formed to meet partner number requirements, but they are subject to annulment.
• Remark 2: Object of the company: the law prohibits activities not aligned with the company's defined object.

Section 2: Specific Conditions of the Company Contract

• Conditions include financial participation, moral participation, and sharing of profits and losses, plus registration in the commercial register.

Paragraph 1: Financial Participation (Contributions)

• Partners must provide contributions to enable the company's activities.
• Contributions:
  • Cash contributions (sums of money).
  • Contributions in kind (assets other than money).
  • Contributions in industry (partner's work).
• Cash and in-kind contributions constitute the company's share capital, which serves as a guarantee for third parties.
• The law emphasizes share capital stability and restricts its reduction without specific conditions.
• The law mandates the constitution of a reserve, deducted annually from profits.
  • Legal Reserve: 10% annually until reaching 30% of the capital.
  • Statutory Reserve: Additional reserve imposed by the company's articles of association.
  • Free Reserve: Discretionary reserve decided annually by the general meeting of partners.

Paragraph 2: Moral Participation

• Partners must have the principle of collaboration to achieve the company’s activity.
• Practical applications:
  • Equality between partners.
  • Non-conflict of interests.
  • Effective participation in management, particularly through voting.

Paragraph 3: Participation in Profits and Losses

• Each partner has the right to participate in the profits and is required to participate in the losses.
• Leonine Clause: Any article preventing a partner from participating in profits or exempting them from participating in losses results in the annulment of the company.
• The law allows partners to set disproportionate profit and loss participation relative to their share capital.
  • If capital participation differs from profit participation (without mentioning loss participation), profit participation equals loss participation.
  • If only capital participation is mentioned, it applies to both profits and losses.

Paragraph 4: Registration

• The company contract must be registered with the court of first instance (commercial register).
• Non-compliance with incorporation rules results in annulment, but the judge may allow correction of defects before a judgment is rendered.

Chapter Two: Institutional Aspect

• A company is a legal entity with distinct characteristics.

Section 1: Characteristics of the Legal Entity

Paragraph 1: The Name

• The process of determining the name depends on whether it is a partnership or a capital company.
• Partnership (Share Company): The name includes the name of one or more partners with the expression "and partners". Partners are personally liable for all debts of the company.
• Joint-Stock (Capital Company): The name can be any name, provided that the legal form of the company and its capital are added. Shareholders are liable up to the amount of their contributions.

Paragraph 2: The Headquarters

• Partners can freely choose the company's headquarters.
• The headquarters should be effective, i.e., the place where the main decisions of the company are made.
• If the effective place differs from the official headquarters, the effective place is legally considered the company's headquarters.

Paragraph 3: The Company's Assets

• The company has assets encompassing all its rights, assets, liabilities, and obligations.
• Rights and assets cover liabilities and obligations.
• The company's assets are distinct from the partners' assets.
  • In capital companies, the company's creditor cannot pursue the shareholder on their personal assets, and vice versa.
  • In partnerships, an exception allows the company's creditor to pursue the partner on their personal assets.

Section 2: Dissolution of Companies

• Reasons for dissolution:
  1. Loss of plurality of partners, with all shares ending up in a single person's hands (except for limited liability companies and offshores).
  2. The end of the company's purpose or its impossibility to be achieved.
  3. Serious disputes between partners that hinder the company's activities.
     • The judge can expel the partner responsible for the dispute.
  4. Expiration of the company's term.
     • Partners can decide to extend it.
• If dissolution occurs, a liquidator is appointed to recover the company's rights and settle its obligations.
• The liquidator distributes the net assets among the partners.
• The legal personality of the company ends at its dissolution, but subsists for liquidation purposes.

Specific Rules for Each Type of Company

• Companies are mainly divided as follows:
  • Partnership or share companies (e.g., general partnership).
  • Capital or stock companies (e.g., joint-stock company).
  • Limited liability companies (mixture of partnership and capital companies).
  • Holdings and offshores (significant tax advantages).

Chapter One: The General Partnership

Section 1: Characteristics of the General Partnership (SNC)

• The SNC is the company in which two or more persons carry out a commercial activity under a corporate name and are personally and jointly liable for the company's debts.
• Distinguished by the personal and joint liability of the partners.

Paragraph 1: Personal and Joint Liability of the Partners

• Personal liability means creditors can pursue partners on their personal assets after formal notice.
  • Makes the partner a merchant.
  • The bankruptcy of the company results in the bankruptcy of the partner.
• Joint liability means creditors can pursue any partner for the full payment of the debt.
  • The paying partner can pursue the other partners, each according to their share.

Paragraph 2: Consequence of the Importance of the Partner's Personality in the SNC

• The principle of Prohibition of Transfer of Shares Without the Unanimous Consent of the Partners
• Each partner chooses their partners carefully.
• The departure of any partner from the company affects its economic strength.
  • The law stipulates the principle of the prohibition of the transfer of shares without the unanimous consent of the partners.
• An exception to this rule allows the partners themselves to include in the articles of association a provision aimed at mitigating the rigor of this rule.
• In the case of the death of a partner, the SNC is transformed into a limited partnership.
  • General partners: Surviving partners who continue to assume personal and joint liability for the company's debts.
  • Limited partners: Have limited liability to the share of the deceased they have replaced.
• When a partner leaves the company, they remain personally and jointly liable for all debts contracted by the company before their departure.
• The partner who leaves the company must request the removal of their name from the corporate name if it is mentioned.

Section 2: Operation of the General Partnership

• The company operates through its bodies, which are divided into two types: general meetings and management bodies.

General meetings

• Extraordinary general meeting: Role is limited to amending the articles of association. Decisions are taken by the unanimous consent of the partners.
• Ordinary general meeting: Deals with all matters that exceed the powers of the director and do not concern the amendment of the articles of association. It makes its decisions in accordance with the conditions set out in the articles of association, generally by a majority of persons and not by a majority of shares, unless the articles of association provide otherwise (Article 882 of the Code of Obligations and Contracts).

Management bodies

• Involve the examination of how the director is appointed, their powers, and the consequences of the decisions they make.

Paragraph 1: Appointment and Removal of the Director

• The director can be chosen from among the partners or outside of them.
• The director is appointed either by the ordinary general meeting or by the extraordinary general meeting, or even by the articles of association.
• If the director is a partner and has been chosen in the articles of association, they can no longer be removed unless they consent. Or a court decision would be required to remove them.
• The director can be removed by the authority that appointed them or by a court decision, but the removal must be for a valid reason.

Paragraph 2: Powers of the Director

• Granted the right to carry out all actions necessary for the proper normal functioning of the company (exceptional matters exceed the powers of the director).
• In case of multiple directors, each has the right to oppose the action envisaged by the other director.
• Exceptions to the director's powers:
  1. The director is prohibited from making decisions outside the company's purpose or of a significance exceeding the proper normal functioning of the company.
  2. The director cannot manage another company with a similar purpose without the authorization of the ordinary general meeting of the partners, and this authorization must be renewed annually.
  3. The director cannot undertake an activity in which they have a direct or indirect interest without the authorization of the ordinary general meeting of the partners, and this authorization must be renewed annually if the duration of the contract exceeds one year.
• The general meeting can set limits to the director's powers (contractual limits).

Paragraph 3: Consequences of Management Acts on the Company

• For the company to be bound by the director's acts:
  • The director signs on behalf of the company, mentioning the corporate name and attaching their personal signature.
  • The director has acted within their powers.
• If the director exceeds their powers, it is necessary to distinguish whether the contracting party with the director is in good faith or in bad faith.
  • The party is considered in bad faith if the director's powers have not been verified by them before the conclusion of the contract.
  • If the company has not published the contractual restrictions concerning the director's powers, it will then be bound towards the party in accordance with the theory of appearance (apparent mandate).

Section 3: Dissolution of the General Partnership

• Can be dissolved for common reasons for the dissolution of companies.
• Also dissolved if the partner resigns, loses their legal capacity, or is declared bankrupt.
• Other partners can decide to continue the company provided that the resigning, bankrupt, or deprived of legal capacity partner is excluded.

Chapter II: The Joint-Stock Company (Anonymous)

Section I: The Incorporation of the Company

• Assumes that the conditions for the formation of the contract and the conditions for the incorporation of the company in general are fulfilled.
• Requires a preparatory stage before reaching the actual incorporation phase.

Paragraph 1: The Preparatory Phase

• Divided into two parts:

  • The establishment phase
  • The subscription phase

  A. The Establishment Phase:

  • Begins when at least three persons decide to incorporate a joint-stock company and agree on the conditions of this company in a draft contract called the articles of association.
  • These persons are called the founders and must be at least three.
  • The founders assume all the tasks necessary for the incorporation of the company.
  • In case of non-incorporation of the company subsequently, the founders are jointly and severally liable among themselves and on their personal assets for the expenses and consequences of the incorporation operations.
  • Once the founders have agreed on the draft articles of association, they certify it and deposit it with the notary.
  • Then, they address an invitation to the public to subscribe to the company's shares, highlighting the characteristics of the company that must be included in the subscription invitation text.

B. The Subscription Phase

• The subscription contract is a contract by which the subscriber undertakes to make contributions to the company in exchange for shares of an equivalent value.
• The minimum nominal value per share is $1,000$ Lebanese pounds, with a minimum capital of $30,000,000$ pounds.
• Contributions can be either in cash or in kind but without contributions in industry.
• Contributions in kind must be fully paid up at the time of subscription, while it is possible to pay only a quarter of cash contributions.
• In return for these contributions, the subscriber obtains shares that must be registered (Bearer or order shares are no longer allowed since 2016).
  • The registered share is one whose owner's name is inscribed on the share certificate as well as in the company's shareholder register.
• The subscription phase ends once all the company's shares are subscribed.

Paragraph 2: The Actual Incorporation Phase

• The company contract is concluded between the shareholders, but during the subscription period, the subscriber has not yet met the other subscribers nor agreed with them on the creation of the company.
• The management bodies have not yet been elected.
• The founders call the subscribers to a constitutive general meeting.
• This meeting is only considered valid if the legal quorum is reached:
  • two-thirds of the shares constituting the capital at the first call,
  • half of these shares at the second call,
  • one-third of the shares at the third call.
• The decisions of this meeting are taken by a two-thirds majority of the shares present or represented.
• The agenda of this meeting includes the following points:
  1. Final approval of the valuation of contributions in kind (The holders of contributions in kind do not participate in the vote on this point due to conflicts of interest with the company).
  2. Final approval of the incorporation acts and the articles of association.
  3. Election of the members of the board of directors.
  4. Appointment of the principal auditor.
• Then, the board of directors meets to elect its president.
• After that, the company can be registered in the commercial register.
• The incorporation of the company must not exceed six months from the first official action, which is the deposit of the articles of association with the notary.

Section 2: The Securities Issued by the Company

• Divided into two categories: shares and bonds.

First Part: Shares

• A share is a security representing all or part of the shareholder's contributions to the company, i.e., it represents a portion of its capital.
• The ownership of a share imposes on its owner a fundamental duty, that of paying it up, while conferring important rights.

A. The Duty to Pay Up the Share

• The ownership of a share imposes on its owner a fundamental duty, that of paying it up, i.e., paying its nominal value in full. This applies of course to cash subscribers who have not paid up all the shares at the time of subscription, while subscribers in kind are required to pay up their shares in full at the time of subscription.
• The law does not impose a specific deadline for the payment of the share capital, but this request is left to the discretion of the board of directors according to the company's financing needs.
• If the shareholder does not pay the required amount by the board of directors, the company can pursue them through ordinary legal channels or sell their shares and hold them liable for damages.

B. The Rights Attached to the Share

• In return for the duty attached to the share, its holder benefits from a set of rights, including:

  1. The rights arising from the principle of cooperation.
     • A. The right to vote: each share conferring on its owner one vote.
     • B. The principle of equality stipulates that each share must include the same rights and obligations as any other share.
       • It is possible to grant certain categories of shares material advantages superior to others, for example, preferred shares to receive dividends in priority.
       • The company can also, in order to stimulate investments in it, issue preferred shares not exceeding 30% of its share capital, benefiting from material advantages, privileges, and specific priorities, while restricting the rights of these shares to participate in debates and votes at ordinary meetings, to sit on the board of directors, and to share the company's assets.
     • C. The right to vote must be exercised in the interest of the company.
       • If the majority has clearly and flagrantly exercised its right to vote in its personal interest and contrary to the interest of the company, it is possible to challenge the validity of the decision taken in this manner due to the abuse of majority in the exercise of its right to vote.
     • D. The vote must be free. Shareholders can conclude voting agreements.
  2. The right to participate in profits and losses (already studied in the general conditions above).
  3. The right arising from the reduction of the personal importance of the shareholder in the limited liability company: the principle of free transferability of shares.
     • In this company, the shareholder is only liable up to the amount of their contributions to the company.
     • The principle is the freedom of transferability of shares.
     • It is possible to impose restrictions on this freedom in the articles of association, provided that these restrictions do not annul the principle of freedom of transferability (it is possible to mention here the pre-emption or approval clauses that can be included in the articles of association, and which are subject to discussion in the practical work distributed to students).

Second Part: Bonds

• The company may need financing without wanting to resort to a single creditor due to financial and legal risks.
• The company can divide the required loan into small equal parts represented by securities called bonds, then invite those who wish to subscribe to these bonds.
• For the company to be able to issue these bonds, the following two conditions must be fulfilled:
  1. The total of the bonds must not exceed double the share capital.
  2. The company's share capital must be fully paid up.

Section 3: The Bodies of the Joint-Stock Company

Paragraph 1: General Meetings

• the convening of these meetings and then the powers of the ordinary and extraordinary general meeting.

First Part: Convening the Meetings

• Composed of all shareholders, and its convening is done by the board of directors, and in case of failure of the latter, by the auditors.
• The auditors are also required to convene the general meeting whenever shareholders representing one-fifth of the capital request it.
• In case of failure of the auditors to respond to this request, the shareholders can request the judge to appoint a director responsible for convening the meeting.
• On the date of the meeting, the shareholders present themselves, but the ordinary meeting is only considered legally held if it obtains the legal quorum (one-third of the shares at the first meeting and any number at the second meeting).
• Decisions are taken by a simple majority of 50% + 1 of the shares present or represented at the meeting.

Second Part: Powers of the Ordinary General Meeting

• Meets regularly at least once a year (called the annual meeting) to examine the matters on the agenda:
  1. Reading the general and special reports of the board of directors on the accounts of the previous financial year.
  2. Reading the general and special reports of the auditors on the accounts of the previous financial year.
  3. Approval of the accounts of the previous financial year and allocation of its result.
  4. Granting discharge to the members of the board of directors for their management during the previous financial year.
  5. Granting to the members of the board of directors and to certain categories of shareholders the authorization provided for by articles 158 and 159 of the commercial code for the current financial year. This is to authorize contracts between the company and its directors or shareholders holding more than 5% and to allow directors to manage other similar companies.
  6. Election or removal of the members of the board of directors (if their term has expired).
  7. Appointment of the principal auditor for the current financial year and setting their remuneration.
  8. Miscellaneous matters.

Third Part: Powers of the Extraordinary General Meeting

• Aims to amend the company's articles of association.
• Requires a quorum of two-thirds of the company's capital at the first call, half at the second call, and one-third at the third call.
• Decisions are taken by a two-thirds majority of the votes present or represented at the meeting.
• Decisions include the amendment of the articles of association, particularly the company's capital, either by increase or by reduction.
• The increase of the company's capital can be done in different ways, including:
  1. By the issuance of new shares, knowing that shareholders have a preferential right to subscribe to the new shares in a non-reducible manner first, then in a reducible manner for the shares not subscribed by other shareholders.
     • The subscription in a non-reducible manner means that the shareholder has the right to subscribe to the same percentage of shares as they already own.
     • The subscription in a reducible manner means that the shareholder who has subscribed in a non-reducible manner has the right to also request to subscribe beyond their share, in case other shareholders have abstained from subscribing in a non-reducible manner. The shares subscribed in a reducible manner are divided among the shareholders in proportion to their participation and within the limits of their requests.
     • The subscription can be done with or without an issuance premium, which constitutes a contribution from the subscriber to the added value that the company has realized before their entry.
  2. By deducting the value of the increase from the free reserve and adding it to the capital, this increase can then be done either by increasing the nominal value of the share or by distributing free shares representing the value of the increase to the shareholders.
  3. By converting debts into capital.
• After the increase, another extraordinary general meeting must be convened to verify the validity of the increase operation and the payment of the shares.
• It is not possible to increase the capital if the previous capital has not been fully paid up.

Paragraph 2: Management Bodies

• Include the board of directors, the president of the board of directors, the general manager, and the deputy general manager.

First Part: The Board of Directors

• Elected by the general meeting, with a minimum of three members and a maximum of twelve.
• Appointment:
  1. A member of the board of directors can be a shareholder of the company or not, and can be a legal entity.
  2. One-third of the members of the board of directors must be Lebanese.
  3. A member cannot sit on more than eight boards of directors of companies based in Lebanon.
• For the board to be legally constituted, a quorum of half of its members is required.
• The decisions of the board are taken by a majority of the members present or represented at the meeting, knowing that a board member cannot represent more than one other member.
• Powers cover all matters necessary for the proper functioning of the company, except for daily operations.
• Include the implementation of the decisions of the general meeting, the election and removal of the president of the board, and the convening of general meetings.
• Responsibility of the Members of the Board of Directors: Jointly and severally responsible for acts of fraud, violations of laws and regulations, as well as their management errors.
  • Their responsibility can sometimes be criminal, particularly in case of fraud and breach of trust.
  • In case of the company's bankruptcy, the court can make all or part of the board members bear the company's debts, on their personal assets.

Second Part: The President of the Board of Directors, the General Manager, and the Deputy General Manager

• Management is entrusted to the president general manager, elected by the board of directors from among the natural persons who compose it.
• No one can assume the presidency of the board of directors of more than six companies in Lebanon.
• The company's articles of association can provide for the separation between the presidency of the board of directors and the management of the company.
• The board of directors can then appoint a general manager from among the shareholders or not.
• The president general manager or the general manager, alone, in case of separation of positions, can propose to the board the appointment of one or more deputy general managers.
• The board of directors appoints the deputy general manager(s) from among persons outside the board, whether shareholders or not, and who must be natural persons.
• The president and/or the general manager, as the case may be, have the right to manage the daily affairs of the company.
• The board or the articles of association can limit or extend their powers.
• In the case where a general manager is appointed and who is not the president of the board of directors, the latter has a general supervisory authority over the company's operations, without intervening in the daily affairs. They preside over the board of directors and give general directives to the general manager that are not binding on the latter.
• The general manager then has all the powers to represent the company vis-a-vis third parties and implement the decisions of the board of directors and manage the daily affairs of the company, as indicated in the articles of association or the usages, and under the supervision and control of the board of directors.

Paragraph 3: Control Bodies

• The supervision of management activities is ensured by a principal auditor, appointed by the general meeting.
• A shareholder or a group of shareholders representing at least ten percent (10%) of the company's capital can request the president of the court of first instance where the company's headquarters is located to appoint an additional auditor chosen from among the expert accountants at the court, having the same powers and fees as the principal auditor.
• The auditor must not have any direct or indirect interest in the company.
• The auditors verify the proper application of legal and accounting rules by the company and inform the shareholders of the results of their work.
• They are appointed for one year (renewable for a maximum of five years).

Section 4: Dissolution of the Company

• This company is subject to the causes of dissolution of companies in general.
• It is dissolved if it loses more than three-quarters of its capital, in which case it is necessary to convene an extraordinary general meeting to decide on the dissolution of the company or the reduction of the capital or the continuation of its activities despite these losses.

Chapter III: The Limited Liability Company (SARL)

• A commercial company composed of one or more partners who bear losses only up to the amount of their contributions.
• In the case where the company is formed by a single person, this person is called the "sole partner" and exercises the powers granted to the general meeting of partners.

Section 1: Characteristics Similar to Partnerships

1. The limited liability company (SARL) is composed of partners who own shares and not stocks. Its corporate name must include the type of company (SARL) and its capital.
2. The number of partners is limited and must not exceed twenty partners, except in case of death and inheritance, where the number can then reach thirty, but must be reduced to twenty within two years under penalty of having to transform the company into another type.
3. Importance is given to the personality of the partner, which translates into the restriction of the transfer of shares. In an SARL, if a partner transfers shares to an outsider, the company has the right to buy back these shares in priority over the buyer. If the company does not exercise this right, it is transferred to the partners. If the partners do not exercise their right of pre-emption, the partner will not be able to sell their shares to an outsider without the agreement of the partners representing three-quarters of the company's capital.
4. The management body is composed of a manager appointed, whose powers are similar to those of the manager of a general partnership.

Section 2: Characteristics Similar to Those of Joint-Stock Companies

1. The first characteristic is the limited liability of the partners, where the partner is never pursued for their personal assets, particularly in case of the company's bankruptcy; the partner is only liable up to the amount of their contributions. However, this does not apply to the manager, as in case of the company's bankruptcy, the court can impose on the manager to cover all or part of the company's debts with their personal assets, thus making the manager's responsibility similar to that of the members of the board of directors in a joint-stock company.
2. The company operates through the meetings of partners who are convened, meet, and make decisions according to rules similar to those applicable to general meetings in a joint-stock company.
3. Finally, this company has control bodies, with the appointment of an auditor responsible for verifying the company's accounting.

Chapter IV: The Holding Company

• The holding company, as its name indicates, is intended to acquire stakes in other companies. Lebanese legislation requires that this company take the form of a joint-stock company.

Section 1: Definition of the Holding Company

• The holding company, as regulated by Lebanese law, is a company whose purpose is limited to the following:
  • A. Acquiring shares in joint-stock companies or stakes in limited liability companies, whether Lebanese or foreign.
  • B. Managing the companies in which it holds shares or stakes.
  • C. Lending to the companies in which it holds shares or stakes and guaranteeing them against third parties, provided that it cannot lend to companies operating in Lebanon if its participation in these companies is less than 20% of their capital.
  • D. Acquiring intellectual property rights (patents, trademarks, etc.) and leasing them.

Section 2: Differences Between the Holding Company and the Joint-Stock Company at the Level of the Articles of Association

A. At the Level of Incorporation:

    1.  Denomination: The law requires the addition of an explicit mention next to the company's name indicating that it is a holding company.
    2.  Capital and Accounting: The law allows it to have a capital in foreign currency and to keep its accounting and books in this currency.

B. Regarding the Management of the Company:

    1.  The General Meeting: allows the holding of board of directors and general meetings outside Lebanon.
    2.  Board of Directors: The law exempts the company from the obligation to have Lebanese members, natural or legal persons, on its board of directors.
    3.  Auditor: It is satisfied with a principal auditor who can be appointed for a term of three years.

Section 3: Advantages of the Tax Regime of the Holding Company

A.

• Joint-stock companies are normally subject to income tax on their net profits at a rate of 17%.
• The law exempts holding companies from income tax, considering that their activity is limited to owning shares or stakes in companies already subject to income tax.
• Instead, the company is subject to a flat tax of $50,000,000$ Lebanese pounds.

B.

• The law imposes a tax on capital income at a rate of 10% (except for exceptions).
• It is customary for the joint-stock company to withhold at source the 10% tax (for example, when distributing profits to shareholders).
• The law exempts distributions made by the company to its shareholders from the tax on capital income, i.e., the 10%.
• As for the management service fees that holding companies charge to subsidiaries only in Lebanon, the law subjects them to a tax of 5%, provided that they do not exceed 2% of the total income of the subsidiary company (provided that the services are the subject of a written agreement).
• the interest that the holding company receives in exchange for loans to subsidiaries operating only in Lebanon, if the loans are contracted for a period of less than three years, are subject to the 10% tax on capital income, provided that the interest rate does not exceed certain limits.
• Finally, the income that holding companies derive from the rental in Lebanon of their own property rights is subject to a tax of 10%.

C.

• If the holding company violates the law by carrying out activities outside those exclusively assigned to it, it becomes subject to the income tax applicable to capital companies operating in Lebanon, in addition to a fine equal to 50% of the value of the tax.

Chapter V: Offshore Companies

Section 1: Definition of the Offshore Company

• Negotiating and contracting operations and transactions that are executed outside Lebanon and that concern funds located abroad or in free zones, or services exported from Lebanon to companies based abroad.
• Activities similar to those of holding companies such as the possession of shares and stakes (including bonds and participations) in foreign companies and enterprises, provided that they are not resident in Lebanon, as well as the management of these companies and institutions and the possession of rights related to agencies and the representation of foreign companies, all outside Lebanese territory.
• Acquiring, managing, and investing in economic projects outside Lebanon, with the exception of insurance operations and operations carried out by institutions regulated by the Bank of Lebanon, such as banks and financial institutions.
  **To achieve these objectives, these companies can open bank accounts in Lebanon, subscribe to credits, borrow from Lebanese banks, subscribe to Treasury bonds, and rent or own real estate necessary for their activities.

Section 2: Characteristics of Offshore Companies at the Level of the Articles of Association

• Except for the possibility of forming this type of company with a single partner, the characteristics of these companies are similar to those applied to holding companies in terms of the possibility of setting the capital in foreign currency, keeping their accounts in foreign currency, being exempted from the presence of Lebanese persons on their board of directors, and being satisfied with a principal auditor who can be elected for a term of three years.

Section 3: Advantages of the Company in Terms of Tax Regime

• Like holding companies, the company is exempt from income tax on its profits and is subject to an annual flat tax of $50,000,000$ Lebanese pounds.
• The profits distributed by the company to its shareholders are exempt from the tax on movable capital, as well as the amounts it pays to persons residing abroad and from the tax on salaries and wages of its employees working abroad.
• It is important to note that