Updated laws on e-transactions, offshore companies, and code of commerce

Fit for purpose

Pressure to update the seven-decades-old Lebanese code of commerce was threefold. First, pressure to reform followed the decision of Banque du Liban (BDL), Lebanon’s central bank, to issue Circular 331 in 2013 to encourage investment in the startup ecosystem, as startups by definition entail innovative technology and development language that is foreign to rigid and non-adaptive Lebanese laws. Second, the revolution of information technology and its use in electronic transactions created an ecosystem that the code was unable to handle and, as such, was a disincentive to foreign investment. Third, pressure to update the code also came from international consulting company McKinsey’s Lebanon Economic Vision, which advocated for 11 statutes to be accelerated to provide a business friendly environment, including the code of commerce. 

To address these gaps, the Lebanese Parliament has enacted three new laws: Law 81 (2018) on electronic transactions and personal data; Law 85 (2019) on offshore companies and single member offshore companies; and Law 126 (2019), which amended the code of commerce law from 1946. 

The main purpose of these laws is to create an ecosystem where companies and startups can prosper and develop, as well as one that is attractive to foreign investments, in order to expose the Lebanese market to international standards and scale. Law 81 was established to create legal controls to protect individuals’ actions, as there was no legislative framework in which e-transactions could be carried out despite these being daily processes in Lebanon. It is a reform that arose alongside the European Union’s General Data Protection Regulation (GDPR), which seeks to protect EU citizens’ data in all jurisdictions. Law 81 is beneficial for the economy in that it allows for e-trading and e-commerce to happen more easily in Lebanon, and between Lebanese companies and those abroad. 

Updates for a digital era

Law 81 can be split into seven parts; the first being the legal requirements on electronic documents and evidence, such as giving the e-signature and e-documents the same power as a handwritten signature and document. The second part covers electronic commerce; it outlines the responsibilities required for all e-commerce practitioners, and covers the e-banking sector. The third part tackles the legal necessities on public communication through electronic supplies, which means that it highlights the responsibilities of the data host and covers the process of providing information online to the public anonymously. The fourth part sets out the national administrative, technical, and legal requirements given by international domain names registration entities. The fifth part states the purposes and boundaries of processing personal information, detailing the obligations and responsibilities of individuals handling the data. The sixth part covers amendments to the penal code, in addition to tackling crimes related to IT systems and bank cards. Finally, the seventh part offers transitional necessities related to the present law by stressing the importance of BDL in licensing electronic signatures and integrating them in the financial and banking sector, while making sure they do not contradict with other laws, especially the banking secrecy law of 1956.

Investment friendly

Law 85 updated Decree 46 (1983) due to the importance of offshore companies in attracting Lebanese and foreign executives to invest in Lebanon. The law’s update, of course comes in the context of Lebanon’s hope for potential offshore oil and gas reserves. This updated law outlined the activities in which offshore companies are allowed to practice. Moreover, this law has ratified the establishment of a single member offshore company in Lebanon, in which a single shareholder manages the company either by themselves or by appointing another director. This single member, being a legal entity or a natural person, is responsible for signing individually on all the company’s decisions, given that they have all the powers and responsibilities usually granted to the board of directors and the general assemblies of the shareholders.

Changes to the code

The major innovation was Law 126, which, after 73 years, reforms and amends a large portion of Law 304 (1946), the code of commerce. Law 126 does not replace the code of commerce but exists to be used in conjunction with it, with its amendments superseding relevant articles in the original law.  This updated law was enacted to meet local and international standards and evolutions in need. These amendments introduce new legal concepts that reform commercial acts in Lebanon. Law 126 opens the local market to a global market by encouraging foreign investments and by integrating several amendments made to adapt to the changed business environment in Lebanon and globally.  

First, the law reforms certain formalities such as integrating electronic usage in daily transactions within the procedural framework, such as deposits and registrations before the trade register. In cases where a company has not been established within six months, the law also allows the founders to recover the deposited amount as capital from the bank accounts. 

Second, the law undertakes several procedural amendments for joint stock companies, such as requiring that one-third instead of two-thirds of board members are Lebanese. In addition, the law separates the roles of the chairperson of the board of directors and the general director to ensure that each role’s responsibilities within the company are clearly defined.  

Moreover,  it tackles Lebanese limited liability companies by allowing a natural person to establish a single partner limited liability company (SARL). The law also provides reforms regarding the transformation of a company, repartition between the bare-ownership and usufruct—the right to use and take advantage of a thing possessed. Regarding bankruptcy, it introduces protections for the estate of the spouse of the bankrupt. In addition, it adopts the regulations of mergers and demergers of a company.

Global depository receipts (GDRs)—defined in the Financial Times glossary as “negotiable shares issued by depositary banks that represent ownership of a specific number of shares in a company and can be traded independently from the underlying shares”—have grown in prominence  in recent years as the favored implement through which companies from emerging markets choose to raise capital. It was important, therefore, to integrate and adopt a new amendment that covers these: Article 28 of Law 126 includes the regulations of the preferred shares and article 458 tackles GDRs. Moreover, these articles were integrated to allow foreign firms to have their stock trade in the domestic market by removing several steps, as well as to ease domestic investor purchases of foreign securities.

The above reforms are a step toward stability and growth and put Lebanon on the right track, which is a path toward an improved future and a modernized contemporary business law that would serve to attract investors and create a perpetual growth economy.

Auguste Bakhos

Auguste Bakhos is the managing partner at Bakhos Law Practice, based in Beirut, Lebanon.

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