The preferred legal structures whether by local or foreign investors to establish a business are the joint-stock company and the limited liability company. Offshore and Holding companies have a limited object and therefore can carry a limited number of activities.

In addition to the above structure an existing local or foreign company can operate in Lebanon through a branch office.

The Capital of a limited liability company is divided into social parts. The transfer of social parts is subject to 10% capital gain tax and if to a non-partner, the transfer is subject to the consent of partners representing at least ¾ of the capital.

The partners’ liability is limited to his contribution into the Capital.

The manager or managers who may be selected among the partners manages the company. The manager can be a foreigner but is subject to a work and residency permit.

An LLC is subject to a 17 % tax on corporate profit and 15% withholding tax on all proceeds derived from movable capital assets generated in Lebanon.

The Capital of a joint stock company is divided into shares. The shares can be transferred to non-shareholders freely except if provided otherwise in the by-laws.

Shareholders’ liabilities are limited to their subscription in the Capital.

The Board of Directors composed of 3 to 12 members manages the company.

The Chairman presides the Board. The Chairman can be a foreigner but is subject to a work and residency permit.

The majority of the board members shall be Lebanese nationals, except for certain restricted sectors where 2/3 of the board members shall be Lebanese nationals, or if the investor is eligible to the “package deal contract” of IDAL where all the board members can be foreigners.

The joint stock company has a principal auditor appointed by the shareholders and a supplementary auditor appointed by the Commercial Court of the district in which its head office is located.

The joint-stock company is subject to a 17 % tax on corporate profit, and 15% withholding tax on all proceeds derived from movable capital assets generated in Lebanon.

A foreign company can engage in business activities in Lebanon through owning wholly or partially a local company, or by establishing a branch office in Lebanon.

Some of the key characteristics of a branch office are the following:

• It is not subject to capital requirements.
• It requires only one auditor.
• Registration procedures are simple and there are no performance requirements or other conditions.
• It can undertake any business activity that is not illegal under Lebanese law.
• If the head of the branch is a foreigner, he must obtain a residence and work permit.

A foreign company may also open a representative office in Lebanon. A Representative office unlike a branch office cannot engage in business activities that would generate an income or any profits in Lebanon. Therefore it is not subject to an income tax.  Its role is limited to public relations and marketing.

Nevertheless a representative office is still required to appoint an auditor responsible to prepare and maintain financial records and do the necessary declaration that will be submitted to the tax department at the Ministry of Finance.

Except in particular cases where the activity of the company is related to mainly the public sector, weapons, media, real estate and national security and commercial representation, foreigners can own all the parts of an LLC and thus fully own the company,

In a joint stock company, except for the above mentioned particular exceptions and if the company’s activity is related to commercial representation, foreign investors can hold a vast majority of the shares of the company. Since the Board of directors shall be composed by a majority of Lebanese national that cannot be appointed as board members unless they possess a pre-defined number of qualifying shares in the capital of the Company (the shares of guarantee). However the required number of the shares of guarantee can be one share. Therefore it will barely affect the ownership of a foreign investor that wishes to own a maximum of the shares forming the capital of the company.

The most optimal type of legal structure to operate in Lebanon will depend on many considerations.

Some of the key considerations to bear in mind are:

• Holding and offshore company have a limited object.
• Joint stock companies have higher capital requirements than limited liability companies.
• Transfer of shares is free in a joint stock company and exempted from tax, compared to transfer of social parts in a limited liability company which requires the consent of at least ¾ of the partners and is subject to 10% capital gain tax.
• The share capital of a joint stock company may be open to public subscription unlike the share capital of a limited liability company, which may not call for public subscription.
• While one or several manager manages a limited liability company, a Board of Directors comprised of 3 to 12 members manages a joint stock companies.
• While a limited liability company needs to appoint only one auditor, a joint stock company is required to request from the courts of its registered office the appointment of a supplementary auditor.