Buying a Franchise in Lebanon: Setting Up the Company That Will Hold the Franchise

You may choose the right brand, then sign a contract in your own name that is meant to be performed by a company that has not yet been formed. This raises a practical problem: who holds the franchise rights, who pays the fees and who bears the obligations? When entering Lebanon’s franchise market, setting up the company is not something to leave until after the deal. It is a decision that shapes the venture’s ownership, management and funding from the outset.

Decide who will hold the rights before choosing a legal structure

Start by mapping out the basics: the investors’ names, each investor’s contribution, who will manage the outlet and which party will sign the franchise agreement. If the business will operate through a company, it is best to arrange for that company to hold the contractual rights and run the business, while clarifying any exceptions the franchisor requires.

Common company structures in Lebanon include the limited liability company and the Lebanese joint-stock company. Do not choose between them based solely on the name or incorporation fee. Ask your lawyer and accountant to compare their management, oversight, accounting and share-transfer requirements, and how well each structure suits the number of investors and your expansion plans. Limited liability does not automatically remove any separate personal obligation you sign up to.

Ask the franchisor in writing: will it accept a newly formed company? Must the operator hold a specified ownership stake? Would bringing in an investor later count as a change requiring its consent? Adding a shareholder may be permitted under company law but breach the franchise agreement if it restricts changes in ownership or control.

Also ask for confirmation that the company’s objects permit the intended activity. Registering a company does not replace the licences needed to carry on the actual business, and the brand’s approval does not exempt you from those requirements.

Understand the Lebanese rules governing incorporation and the agreement

Lebanon has no comprehensive franchise-specific law or statutory franchise disclosure regime. The relationship is governed principally by the Code of Obligations and Contracts and general contract rules, while the Commercial Code and company-specific rules govern the entity’s formation and organisation. Tax, employment, intellectual property and licensing rules must also be observed, depending on the activity.

The Lebanese Franchise Association has adopted a code of ethics that includes pre-contractual information requirements, but it is not a generally applicable law imposing uniform obligations on every franchisor. Nor should you assume that calling an agreement a ‘franchise’ settles its legal classification. Whether Legislative Decree No. 34 of 1967 on commercial representation applies requires an examination of the nature of the relationship; it should not be assumed to apply to all franchise agreements.

In practice, the company needs to register with the Commercial Register and complete the appropriate tax registrations. VAT registration must be assessed against the applicable criteria, and employees must be registered with the National Social Security Fund in accordance with the relevant rules. These registrations relate to the entity and its activities; they are not a special registration that automatically validates the franchise agreement.

If any investors are foreign nationals, distinguish between owning shares and working in Lebanon. Foreign ownership is generally permitted, subject to exceptions for certain activities. A foreign investor who owns and manages their business from within Lebanon will need to establish which work permit and residence requirements apply. Check the current requirements before defining their executive role.

Align the shareholders’ agreement with the franchisor’s terms

The franchise agreement alone does not govern the relationship between investors. Before committing funds, put a clear agreement in place covering cash and non-cash contributions, ownership percentages, management powers and spending approval procedures. Document whether money provided by a shareholder is a capital contribution or a loan: each has different implications for the parties’ rights and the repayment of funds.

Focus on three practical tests:

• Funding a shortfall: If the business needs additional funding, are shareholders obliged to contribute? What happens if one refuses?
• Making decisions: Who approves the budget, borrowing or the opening of another outlet? How are tied votes resolved?
• Changes in shareholders: What happens if a shareholder dies, becomes incapacitated or wants to sell their stake? Is the franchisor’s consent required?

Align the answers with the franchise agreement and the company’s constitutional documents. If the shareholders’ agreement gives someone the right to sell their stake but the franchisor requires prior consent, the sale may be blocked despite the investors’ agreement. Ask for compatible procedures to be drafted rather than relying on a general statement that the contract must be respected.

Arrange signatures and payments in the correct entity’s name

Set out a written sequence: incorporate the company, complete its documentation, obtain the franchisor’s approval of it, then sign the agreement and have invoices issued in its name. If the franchisor asks for a reservation commitment before incorporation, do not assume that writing ‘on behalf of a company in formation’ removes your personal liability.

Ask for clear terms identifying who is temporarily bound, how the rights and obligations will transfer to the company, and when the original signatory will be expressly released. The contract does not transfer automatically when the company is formed. Depending on the wording and circumstances, the transfer may require the franchisor’s consent and a separate agreement.

Set aside a separate budget for incorporation, registration, accounting, legal review and recurring administrative obligations, rather than treating these as part of the franchise fees. Keep evidence of every payment a founder makes on the venture’s behalf, and specify how it will be treated in the accounts after incorporation.

Practical takeaway: Before making any binding commitment, ensure that the named franchisee, company documents, shareholders’ agreement and payment arrangements all align. This coordination keeps ownership and responsibilities clear and reduces the need to repair contracts after money has been paid.