Post by alefdracon on Oct 24, 2018 1:29:25 GMT 4
1. What are the most common legal structures for a family business in this jurisdiction, and what are their main advantages and disadvantages?
There are no specific legal structures used for family businesses in Lebanon. The choice of the legal structure adopted by a family depends on many elements, such as the type of activity, the number of partners, the investment amount, taxation, etc. This gives families significant flexibility in designing the most suitable structure for their prospective project. Traditionally, the most widely used form of company was the non‐regulated undisclosed partnership ("sociétés de participation") and the General Partnership forms ("sociétés en nom collectif"), although there has recently been an escalating trend to use limited liability structures due to the protection they give to shareholders and partners.
Families in Lebanon may choose between many types of legal structure depending on whether they wish to base it on the intuitus personae which means the personal involvement of each family member or partner or the intuitus pecuniae which means the financial involvement of each associate. Companies relying on the intuitus personae or companies of persons:
Companies of persons are constituted by two or more partners. All the partners in these companies are usually personally and jointly responsible for the liabilities/debts of the company. Companies of persons can take many forms. The most common forms for a family business are:
a. General Partnership (Société en Nom Collectif ‐ SNC)
In these companies, no minimum capital is required. The management and organisation of the company belongs to all partners unless it is entrusted to one or several partners or even to an outsider.
b. Simple Partnership (Société en Commandite Simple)
A simple partnership is comprised of two types of partners: active partners who can only be responsible for management and are held personally and jointly liable for the payment of company debts, and sleeping partners who are liable only up to the amount of their contribution to the company.
c. Undisclosed Partnership (Société en Participation)
This is an unregistered type of company without corporate or legal personality. This company does not have to make itself public and may remain secret, as long as its manager is legally registered as a merchant and declares the company to the Centre of Taxes.
Companies relying on the intuitus pecuniare
These companies are composed of between 3 and 12 partners or directors. The liability of family members (partners and shareholders) is limited to their contribution to the equity capital.
a. Limited Liability Company (SARL)
Many families choose the form of a limited liability company which is of a hybrid nature comprising both the intuitue personae and the intuitus pecuniae, due to its low minimum capital of LBP 5 million. In addition to that, the appointment of an auditor in these companies is not needed unless (1) the capital of the company exceeds LBP 30 million; or (2) the number of the partners exceeds 20; or (3) upon the request of a partner or partners representing one fifth of the capital. However, these companies cannot operate in the fields of banking, insurance and air transport.
b. Joint Stock Company (Société Anonyme Libanaise ‐ SAL)
Larger family businesses in Lebanon are structured as closed joint stock companies. This type of legal structure can conduct all kinds of business activities. The minimum capital is LBP 30 million, at least one quarter of which must be paid at registration (fully subscribed) and it can consist of cash or in kind. Furthermore, shares can be transferred relatively easily and efficiently. In addition, a minimum of three shareholders is required as well as a minimum of three members for the constitution of the board of directors elected from the shareholders. The board of directors should elect a board member to be the chairman/general director and therefore the head of the business. For family businesses, it would be very important to choose the members of the board wisely to ensure the survival of the business for generations and for good management.
c. Holding Companies
Family businesses may also want to incorporate holding companies, which are registered in the form of joint stock companies. They are limited to buying shares in existing Lebanese or foreign joint stock or limited liability companies, or to holding intellectual property rights.
These companies offer the advantage of concentrating the management of the family business when it is constituted of several different companies that could be running several businesses. Holding companies will hold the majority of the other companies' shares and will therefore be implicated in the company's management.
Another advantage is that these companies enjoy tax exemption on profits and dividend distribution. In addition to that, they can grant loans to companies in which they own shares and guarantee them to third parties. The holding company can avoid the double taxation of dividends since dividends are subject to withholding tax of 10% at source. Distributions from companies to their parents would have been subject to multiple withholding tax.
Another taxation advantage is that interests on loans greater than three years granted from a holding company to its sister companies are not subject to taxes. In addition to that, management fees and royalties are subject to a reduced rate of tax of 5%.
d. Offshore Companies
This form of legal entity is also used in family business structures in Lebanon. Offshore companies may have their headquarters inside or outside Lebanon, however they are confined to carrying out activities and operations outside Lebanon. These structures are used for many advantageous reasons particularly because they are subject to a flat annual tax of LBP 1 million. They are exempt from income tax on profits, withholding tax, stamp duties on contracts, tax on interests, capital gains, succession, payroll taxes for employees outside Lebanon, etc. The capital gains resulting from the sale of the offshore company's fixed assets in Lebanon are taxed at a rate of 6 percent. In addition to the favourable tax regime, offshore companies, under certain conditions, enjoy exemption of foreign employees from working permits.
2. Are there any specific considerations for a family business in this jurisdiction intending to do business or hold assets overseas?
In general, there are no restrictions for a family business in Lebanon intending to do business or hold assets overseas. Nevertheless, there are certain considerations that need to be taken into account by the family business.
First of all, they need to know that in the absence of a double taxation exemption treaty between Lebanon and the country where the business or the assets are held, the company might have to pay double taxes in Lebanon and in the foreign country. In the presence of a double taxation exemption treaty, they should be well informed about its content and seek advice on the taxes to be paid, because holding assets or conducting a business in overseas jurisdiction may subject the company to tax in that particular country.
The form of the company operating the business varies according to whether the family business intends to only do business and hold assets overseas, or if they wish to do business and hold assets in Lebanon and overseas.
There are no specific legal structures used for family businesses in Lebanon. The choice of the legal structure adopted by a family depends on many elements, such as the type of activity, the number of partners, the investment amount, taxation, etc. This gives families significant flexibility in designing the most suitable structure for their prospective project. Traditionally, the most widely used form of company was the non‐regulated undisclosed partnership ("sociétés de participation") and the General Partnership forms ("sociétés en nom collectif"), although there has recently been an escalating trend to use limited liability structures due to the protection they give to shareholders and partners.
Families in Lebanon may choose between many types of legal structure depending on whether they wish to base it on the intuitus personae which means the personal involvement of each family member or partner or the intuitus pecuniae which means the financial involvement of each associate. Companies relying on the intuitus personae or companies of persons:
Companies of persons are constituted by two or more partners. All the partners in these companies are usually personally and jointly responsible for the liabilities/debts of the company. Companies of persons can take many forms. The most common forms for a family business are:
a. General Partnership (Société en Nom Collectif ‐ SNC)
In these companies, no minimum capital is required. The management and organisation of the company belongs to all partners unless it is entrusted to one or several partners or even to an outsider.
b. Simple Partnership (Société en Commandite Simple)
A simple partnership is comprised of two types of partners: active partners who can only be responsible for management and are held personally and jointly liable for the payment of company debts, and sleeping partners who are liable only up to the amount of their contribution to the company.
c. Undisclosed Partnership (Société en Participation)
This is an unregistered type of company without corporate or legal personality. This company does not have to make itself public and may remain secret, as long as its manager is legally registered as a merchant and declares the company to the Centre of Taxes.
Companies relying on the intuitus pecuniare
These companies are composed of between 3 and 12 partners or directors. The liability of family members (partners and shareholders) is limited to their contribution to the equity capital.
a. Limited Liability Company (SARL)
Many families choose the form of a limited liability company which is of a hybrid nature comprising both the intuitue personae and the intuitus pecuniae, due to its low minimum capital of LBP 5 million. In addition to that, the appointment of an auditor in these companies is not needed unless (1) the capital of the company exceeds LBP 30 million; or (2) the number of the partners exceeds 20; or (3) upon the request of a partner or partners representing one fifth of the capital. However, these companies cannot operate in the fields of banking, insurance and air transport.
b. Joint Stock Company (Société Anonyme Libanaise ‐ SAL)
Larger family businesses in Lebanon are structured as closed joint stock companies. This type of legal structure can conduct all kinds of business activities. The minimum capital is LBP 30 million, at least one quarter of which must be paid at registration (fully subscribed) and it can consist of cash or in kind. Furthermore, shares can be transferred relatively easily and efficiently. In addition, a minimum of three shareholders is required as well as a minimum of three members for the constitution of the board of directors elected from the shareholders. The board of directors should elect a board member to be the chairman/general director and therefore the head of the business. For family businesses, it would be very important to choose the members of the board wisely to ensure the survival of the business for generations and for good management.
c. Holding Companies
Family businesses may also want to incorporate holding companies, which are registered in the form of joint stock companies. They are limited to buying shares in existing Lebanese or foreign joint stock or limited liability companies, or to holding intellectual property rights.
These companies offer the advantage of concentrating the management of the family business when it is constituted of several different companies that could be running several businesses. Holding companies will hold the majority of the other companies' shares and will therefore be implicated in the company's management.
Another advantage is that these companies enjoy tax exemption on profits and dividend distribution. In addition to that, they can grant loans to companies in which they own shares and guarantee them to third parties. The holding company can avoid the double taxation of dividends since dividends are subject to withholding tax of 10% at source. Distributions from companies to their parents would have been subject to multiple withholding tax.
Another taxation advantage is that interests on loans greater than three years granted from a holding company to its sister companies are not subject to taxes. In addition to that, management fees and royalties are subject to a reduced rate of tax of 5%.
d. Offshore Companies
This form of legal entity is also used in family business structures in Lebanon. Offshore companies may have their headquarters inside or outside Lebanon, however they are confined to carrying out activities and operations outside Lebanon. These structures are used for many advantageous reasons particularly because they are subject to a flat annual tax of LBP 1 million. They are exempt from income tax on profits, withholding tax, stamp duties on contracts, tax on interests, capital gains, succession, payroll taxes for employees outside Lebanon, etc. The capital gains resulting from the sale of the offshore company's fixed assets in Lebanon are taxed at a rate of 6 percent. In addition to the favourable tax regime, offshore companies, under certain conditions, enjoy exemption of foreign employees from working permits.
2. Are there any specific considerations for a family business in this jurisdiction intending to do business or hold assets overseas?
In general, there are no restrictions for a family business in Lebanon intending to do business or hold assets overseas. Nevertheless, there are certain considerations that need to be taken into account by the family business.
First of all, they need to know that in the absence of a double taxation exemption treaty between Lebanon and the country where the business or the assets are held, the company might have to pay double taxes in Lebanon and in the foreign country. In the presence of a double taxation exemption treaty, they should be well informed about its content and seek advice on the taxes to be paid, because holding assets or conducting a business in overseas jurisdiction may subject the company to tax in that particular country.
The form of the company operating the business varies according to whether the family business intends to only do business and hold assets overseas, or if they wish to do business and hold assets in Lebanon and overseas.