Law on Private Investment Companies

Republic of Lebanon Chamber of Deputies Law on Private Investment Companies

Single Article:

• Ratified the bill contained in Decree No. 2853 dated April 27, which regulates private investment companies, and its name was amended to "Law on Private Investment Companies" by the Joint Committees and the Chamber of Deputies.
• This law takes effect upon its publication in the Official Gazette.

Chapter 1: Framework for Application and General Provisions Article 1: Definitions In the context of applying this law's provisions, the following terms are defined as follows: "Company": A simple partnership company established in Lebanon, whose subject matter is exclusively limited to the activities specified in Article 2 of this law. "Financial Instruments": As defined for this term in the Financial Markets Law. "Authority": The Financial Markets Authority established pursuant to the Financial Markets Law. "Manager": One or more natural or legal persons entrusted with managing and representing the Company. "Investment Management Company": A company licensed by the Authority to conduct asset management activities, or an institution licensed in a foreign jurisdiction that applies regulatory standards at least equivalent to those of the Authority, entrusted with managing the Company's investment portfolio(s). "Custodian": A legally licensed institution or one licensed by the Authority to conduct financial instrument custody activities, where the Company's assets are deposited. "Professional Investor": An investor in the Company meeting the definition of "Professional Investor" as set forth in the Authority's implementing regulations. "Counterparty": An investor in the Company meeting the definition of "Counterparty" as set forth in the Authority's implementing regulations. "Period": A six-month semester. "Financial Markets Law": Financial Markets Law No. 161 issued on August 17, 2011, and its amendments. "Commercial Law": Commercial Code issued by Legislative Decree No. 304 on December 24, 1942, and its amendments. "Income Tax Law": Income Tax Law issued by Legislative Decree No. 144 on June 12, 1959, and its amendments. "Entities": Legal entities, whether possessing or lacking legal personality. "Competent Court": The Primary Civil Court handling commercial cases, where the Company's headquarters are located.

Article 2: Scope of Application This law applies to simple partnership companies established in Lebanon, exclusively engaged in the following: (a) Investing in financial instruments issued by private companies and entities, not traded on organized markets at the time of investment. (b) Managing the companies and entities mentioned in subsection (a). (c) Lending to any such company/entity if it participates or holds at least ten percent (10%) and guarantees them to third parties. (d) Acquiring movable or immovable assets, provided the latter are exclusively for their business needs, subject to laws on non-Lebanese acquiring real estate rights in Lebanon and its amendments. Second: The Company may borrow to execute its subject matter and finance activities, except borrowing from partners for lending purposes. Third: The Company is prohibited from directly conducting activities outside its defined subject matter; any such violation automatically deprives the Company of this law's benefits from the start of the financial year in which the violation occurred.

Article 3: Excluded Commercial Law & Obligations Articles Articles 47 to 52, and 55, 56, 65 to 67, 70, 71, 75, 228, and 236 of the Commercial Law do not apply to the Company. Other relevant Commercial Law articles applicable to simple partnership companies apply, provided they do not contradict or conflict with this law. Articles 897 and 898 of the Obligations Law do not apply to the Company.

Article 4: Other Inapplicable Laws/Regulations Law No. 706 dated December 9, 2005, regarding "Collective Investment Entities in Financial Instruments and Other Financial Assets" does not apply to the Company, nor do the Authority's implementing regulations concerning such entities.

Article 5: Company Name The Company established under this law shall be named "Private Investment Company". This name or its abbreviation (P.I.C. / SICAP) must appear clearly alongside the Company's name on all documents, advertisements, circulars, and other materials issued by the Company.

Chapter 2: Establishment & Investment in the Private Investment Company Article 6: Establishment of the Company First: The founding deed may be notarized or executed under private signature. In the latter case, the deed must be drafted in Arabic or a foreign language and translated into Arabic. Second: Within one month of the Company's establishment, a copy of the founding deed must be filed with the competent court's registry. Third: Within the same period, a summary of the founding deed must be published in the commercial register where the Company's headquarters are located, signed by the Manager and authorized partners, containing the following data: (a) Information on authorized partners, including for natural persons: name, alias, nationality, address, date and place of birth; and for legal entities: name, headquarters, and subject matter. (b) Company name, headquarters, and subject matter. (c) Name of the Manager(s) and their respective powers if specified in the founding deed. (d) Establishment date and Company duration. (e) Rules for collective decision-making, including those regarding amendments to the founding deed. (f) Procedures for transferring shares of authorized and limited partners. Fourth: If an amendment is made to the founding deed, a new copy must be filed with the competent court's registry within one month of the amendment, and publication in the commercial register must also occur within the same period if the amendment affects the data listed above. Fifth: Failure to file the founding deed with the competent court's registry or failure to publish its summary in the commercial register renders the Company voidable. The Manager and authorized partners are jointly liable to third parties for damages arising from such failure. Unfiled or unpublished amendments are unenforceable against third parties. Interested parties may claim voidability arising from non-filing or non-publication. Partners, however, cannot assert it against third parties. If filing and publication are completed late, contractors who dealt with the Company prior to correction may exclusively claim voidability. In all cases, the right to claim voidability expires one year after correction is completed.

Article 7: Investment in the Company First: A legal entity or natural/legal person may subscribe to limited partner shares or acquire these shares. Second: Subscriptions are restricted to the following limited partners: (a) Professional investors. (b) Counterparties. (c) Affiliated managers, including the Manager, Investment Management Company, or any company providing management services to them, whether directly or indirectly, as well as their directors, employees, or any natural/legal person acting on their behalf. (d) Investors whose initial subscription or acquired share value amounts to at least one hundred fifty million Lebanese Lira (or equivalent in foreign currencies). Third: The Manager, Investment Management Company, or Custodian may be designated in the founding deed to verify the status of subscribers or acquirers as: (a) Professional investors per subsection (a). (b) A Company subject to this law. (c) Legally subscribing or acquiring shares with explicit declaration of knowledge and acceptance.

Article 8: Exempt Offering First: Subscriptions by limited partners are automatically exempt from public offering requirements under the Financial Markets Law or its implementing regulations. Second: Despite any contrary provision, subscriptions by limited partners do not require a financial intermediary and may be conducted directly by the Company.

Chapter 3: Management of the Private Investment Company Article 9: Company Management First: The Company is managed by one or more Managers appointed and replaced according to the founding deed. Second: The Manager may be a natural or legal person, and is not required to hold a license from the Authority or any other domestic/foreign jurisdiction. Third: The Manager is liable for violations of applicable laws/regulations, the founding deed, and errors committed in managing the Company. Any partner may file a liability claim against the Manager on behalf of the Company.

Article 10: Investment Portfolio Management First: The Company may, per the founding deed, delegate management of its investment portfolio(s) to one or more companies licensed by the Authority, or institutions licensed in foreign jurisdictions applying at least equivalent regulatory standards. Delegation is executed via a written contract under penalty of nullity. Second: The Investment Management Company holds decision-making authority regarding portfolio management, including representation powers, subject to the founding deed and delegation contract. In case of conflict between the founding deed and the delegation contract, the founding deed prevails.

Article 11: Limited Partner's Intervention in Management First: A limited partner may not intervene in the Company's management vis-à-vis third parties, unless such intervention is supported by a power of attorney. Exception: If the limited partner was appointed as Manager or Investment Management Company, their intervention is permitted in that capacity. Article 230 of the Commercial Law does not apply. Second: Exercising partner rights, providing advice, conducting supervision/oversight, granting loans, or assisting the Company does not constitute management intervention. Authorization for Managers to perform acts beyond their powers also does not constitute intervention.

Article 12: Investment Rules First: The founding deed defines investment rules and compliance with applicable laws/regulations. Second: Without prejudice to Article 2, Company assets may include investments in other Lebanese Private Investment Companies or foreign companies/entities with similar subject matter.

Chapter 4: Custodian Article 13: Appointment of Custodian First: The Company appoints a licensed financial instrument custody institution as its Custodian via written contract (under penalty of nullity), per the founding deed. The Custodian must be independent from the Manager and Investment Management Company. Second: Independence requires that the Custodian not belong to the same economic group as the Manager or Investment Management Company. An economic group is defined as: (a) A corporate group where a natural person owns majority voting rights, or the parent company exercises management/oversight over subsidiaries under permanent supervision. The natural person or parent must hold majority capital, voting rights, or appoint over half the board/directors. (b) A group of two or more companies where each holds at least twenty percent (20%) of the capital of the others.

Article 14: Asset Registration & Segregation First: Financial instruments belonging to the Company are registered in the Custodian's name for security. Second: The Company's assets held by the Custodian form a separate block within their financial statement and outside the balance sheet. Despite any contrary provision, Company assets are protected from creditors' seizures and direct claims unrelated to them. Assets remain outside the Custodian's estate in case of suspension of payments or bankruptcy, except for contractual maturity waivers. Third: The Custodian must account-segregate the Company's investment assets from its own and clients' assets, including recording them separately.

Article 15: Custodian's Duties First: The Custodian must perform duties with honesty, fairness, professionalism, independence, and exclusive benefit to the Company. Second: The Custodian must: (a) Execute Manager/Investment Management Company instructions regarding deposited assets, unless contrary to law or the founding deed. (b) Refrain from disposing of deposited assets without such instructions. (c) Verify that corresponding values for ongoing transactions are transferred to the Company as per the founding deed. (d) Verify that Company funds and revenues are used as specified in the founding deed.

Article 16: Custodian's Liability First: The Custodian remains liable for all entrusted assets even if a third party holds part of them. Second: The Custodian is liable to the Company for damages resulting from wrongful or non-performance of obligations. The right to sue the Custodian belongs exclusively to the Company (represented by its Manager), though any partner may also sue on behalf of the Company if the Manager delays.

Article 17: Termination of Custodian's Term First: The Custodian's term ends upon: (a) Termination of the asset custody contract per its terms and the founding deed. (b) Bankruptcy, composition, or voluntary/judicial liquidation of the Custodian. (c) Revocation of the Custodian's license to conduct custody activities. Second: A new Custodian must be appointed within six months per the founding deed. The Company is not automatically dissolved if appointment is delayed, except in cases (b) and (c). The outgoing Custodian continues duties until a replacement is appointed. Third: Delayed appointment does not dissolve the Company if the outgoing Custodian holds assets for one or more independent portfolios established under Article 28, without holding all Company assets. In such cases, only the independent portfolios with assets held by the outgoing Custodian are liquidated, without affecting the Company as a whole.

Chapter 5: Share System & Investor Rights in the Private Investment Company Article 18: Nominal Shares First: All limited partner shares are nominal. Second: A limited partner's right to shares is established by registration in a special register; share ownership arises from this registration. Certificates may be issued per the founding deed.

Article 19: Share Differentiation The Company may issue shares granting different rights over the entire or partial assets/revenues, per the founding deed. Differentiation may include: (a) Rights regarding revenue distribution. (b) Nominal values and prices (all or partially), with zero-par shares valued against net asset value at issuance. (c) Different currencies. (d) Subject to different management fees or subscription commissions. (e) Allocated to specific investment sectors.

Article 20: Issuance & Release of Shares First: The founding deed defines issuance and release conditions; no filing or publication is required for new share issuances. Second: If a partner defaults on their shares per the founding deed, the Manager may, one month after notice, suspend distributions related to these shares, collect due amounts, or sell the shares to third parties under suitable conditions. Third: The founding deed may suspend non-financial rights (attendance, voting, information access) for defaulting partners until full payment. Fourth: Upon share transfer, subscribers and assignees are jointly liable for unpaid amounts unless the founding deed states otherwise. Fifth: The Company must maintain a bank account with a licensed Lebanese bank.

Article 21: Centralization of Share Subscription Orders The Manager, Investment Management Company, Custodian, or designated person centralizes subscription orders per the founding deed and bears joint liability to third parties for proper execution.

Article 22: Trading of Shares First: Despite any contrary provision, limited partner shares are financial instruments and transferable. Transfer is documented by a declaration entered in the partners' register, signed by an authorized person. The Company may require identity and capacity verification before registration. Second: Authorized partner shares are non-transferable. Transfer is proven by filing an original copy of the transfer deed at the Company's headquarters, accompanied by a Manager confirmation or per Article 283 of the Obligations Law. Transfer is enforceable against third parties from transaction completion. Third: The founding deed may stipulate prior consent for transfer, redemption rights, or forced transfer clauses. The Manager exercises authority over these clauses per the founding deed (especially regarding price). Affected parties may sue the Manager for damages if the founding deed or law is violated. Any transfer violating the founding deed is void.

Article 23: Distributions The founding deed defines distribution rules, including partial/full repayment of partner contributions. No filing or publication is required for distributions.

Article 24: Amendment of Founding Deed & Collective Resolutions First: The founding deed defines amendment procedures. Second: Collective resolutions are required for decisions amending the Company's subject matter, merger, spin-off, conversion, dissolution, or liquidation, and those affecting limited partner rights. Such resolutions require approval from authorized partners. Third: Unless otherwise stated, each limited partner's voting power equals their share count.

Chapter 6: Accounting in the Private Investment Company Article 25: Financial Year The founding deed defines the financial year, not exceeding twelve months. The first year may extend up to eighteen months.

Article 26: Accounting Reports First: The Manager prepares an asset statement within four weeks of each period's end, in collaboration with the Custodian. The Company must make statements available to partners upon request within eight weeks of each period's end. A supervisory commissioner monitors asset formation before publication. Second: The Company prepares detailed annual reports, balance sheets, and profit/loss statements. These are audited by the supervisory commissioner and published in the commercial register. The Custodian or any partner may request publication if the Manager delays. Third: Documents, including the supervisory commissioner's report, must be made available to partners within twelve weeks of year-end upon request.

Article 27: Supervisory Commissioner First: The Manager appoints an independent supervisory commissioner for five years (renewable). No additional or alternate commissioners are required. Independence rules mirror those for the Custodian (Article 13, second paragraph). Second: The commissioner audits accounts and performs other statutory duties, reporting violations to the Manager. Third: The Company cannot request consulting services from the commissioner, nor can the commissioner provide them (except for audit-related services) during their term and two full years after. Fourth: Partners holding at least five percent (5%) of total issued shares may petition the competent court to dismiss the commissioner for cause. If the commissioner commits an error or faces legal/material impediments, the Manager or qualifying partners may petition for dismissal. The court appoints a replacement who serves until a permanent commissioner is appointed per the founding deed.

Chapter 7: Independent Portfolios in the Private Investment Company Article 28: Independent Portfolios First: The Company may contain one or more independent portfolios without legal personality, if the founding deed permits. Second: Despite any contrary provision (including Article 268 of the Obligations Law), assets of a specific independent portfolio are only liable for that portfolio's debts and obligations, unless otherwise stated. Third: The Manager or Investment Management Company must notify third parties contracting with the Company that their rights are secured by general assets and/or specific independent portfolio assets. The Manager and Investment Management Company are personally liable for violations. Fourth: Each independent portfolio maintains separate accounting, which may be kept in any currency per the founding deed.

Chapter 8: Dissolution & Liquidation of the Private Investment Company Article 29: Dissolution of the Company First: The Company survives the death, legal incapacity, bankruptcy, composition, or voluntary/judicial liquidation of any limited partner. Second: Without prejudice to Article 17(2), the Company dissolves upon general dissolution causes. It also dissolves upon death, incapacity, bankruptcy, composition, or liquidation of an authorized partner. If multiple authorized partners exist, the Company may continue by redeeming and paying the affected partner's shares, valued by the supervisory commissioner unless otherwise stated.

Article 30: Liquidation of the Company The Manager or an appointed person conducts liquidation procedures and surplus distribution.