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PROPOSING A PROJECT-LAW FOR SIMPLIFIED JOINT-STOCK COMPANIES IN LEBANON S.A.S “Société par Actions Simplifiée” Dr Fouad Zmokhol – Chargé d’enseignement à la FGM Président du « Rassemblement de Dirigeants et Chefs D’Entreprises Libanais » (RDCL) The Lebanese private sectors truly believe that the SAS form of company will facilitate the creation, development and growth of SMEs in Lebanon. SMEs are very fragile organizations sensitive to various outside factors (local and regional economy, trade barriers, cost structure) and to their legal environment in general. Any sustainable ambition to improve the business environment for SMEs will have to look at various factors and their implications on the development of these enterprises. Beyond direct or indirect subsidies and various transactional initiatives, SMEs need to operate in environments that will encourage constructive and healthy development dynamics. SMEs in the recent past have been moving from family/individual businesses with their own self-financing capabilities to businesses requiring the cooperation or pooling of various player categories upfront. Successful SMEs development along its various stages require flexibility, mobility, fast track execution, and reassurance on their rights guaranteed by the business law. Typically, SMEs go through various development phases and will require funding at different stages. Also, they will need opening to outside talents. This will result in temporary swings in the balance of power, added value and of course risk sharing distribution. Complicated or rigid requirements or constraints can stall the development of SMEs, or even dramatically accelerate their exit from the market. The current Lebanese Commerce Law offers a very limited spectrum of options for the legal set-up of companies: Sarl : société anonyme à responsabilité limitée (limited liability Company): Is designed mainly for small businesses with limited need for outside capital Is not equipped to attract outside investors along its development phases 1 Is not attractive to outside creditors (limited liability) Does not have the minimum checks and balances and accountability procedures to attract outside players (silent partners, experts vesting plans) Any change in the statutes, shareholding or the business requires procedures that are tedious and relatively uncertainly long or costly Usually, it is ideal for owner /manager with limited reporting /accountability constraints or requirements. SAL: Societé Anonyme Libanaise or Joint Stock Company basically requiring a board with accountability, a relatively heavy set of requirements in terms of reporting to the public authorities and well organized by the Commerce Law. Currently the most dramatic hurdles to create and develop SMEs in the Lebanese business environment come from three major sources: 1) The close relation by law between capital and authority (as set by the Commercial Law) which results in scaring away experts and entrepreneurs to partner with outside capital and which imposes long and tedious uninformed negotiations or dialogue of the deaf (Expert/entrepreneurs ask for the Capital up-front for high stakes in companies to secure authority in the organization; Capital needs needs to oversee more their investment). Discussions take too long and they often lead nowhere 2) The legal limitations for the integration of contractual agreements among various players where all issues are addressed and where the rights are protected and the clauses are effectively executable. Here again any balanced agreement will be requiring long, tedious and expensive customization and craftsmanship efforts, and many potential “joining forces” efforts are dropped because of the difficulty to design platforms for cooperation 3) The constraints and requirements of the SAL with respect to the real needs of the SMEs are scaring the SMEs managers with their overwhelming responsibilities and requiring efforts with limited added value to the development and growth of their organizations. Equally frustrating is the fact that SMEs that start on a fast track as SARL, later find it complicated and tedious to upgrade to SAL structure and penalize themselves with a tight and often limiting structure. The French system from which the Lebanese system is entirely inspired and on which it is based/benchmarked has developed its own set of laws to facilitate the administrative work for SMEs while maintaining an acceptable level of flexibility in the relations among the various parties. 2 SMEs in France can conveniently operate under the legal structure of a “Societé par Actions Simplifiée” (SAS), a legal framework more adapted to their needs and equipped to address their concerns. The Lebanese Government needs to look at the SAS section already developed and tested in France (where SMEs with a SAL structure have dropped from 40% in 2000 to 10% five years after the introduction of SAS structures) and come up with a customized version for the Lebanese SMEs. The Lebanese Government can take useful and effective action for SMEs by integrating a law for a SAS type of legal structure in its programmed overhauling of the Lebanese Commerce Law. It is fundamental to provide the structural direction for SMEs before considering traditional and standard incentive programs proven to be more costly and to have overall less sustainable effects. 3