Converting an Existing Shop into a Franchise in Lebanon: Checking Liabilities

Bringing an established shop into a franchise network may seem quicker than opening a new outlet: the premises are ready, the team is in place and customers know the location. But changing the signage does not wipe out the shop’s debts or previous commitments. If you are expanding your business in Lebanon by franchising existing shops, start by checking which liabilities will remain after conversion, and set out in writing who will bear them and how they will be managed during the transition.

1. Establish what will change legally

Before discussing an opening date under the new brand, establish a clear picture of the transaction. Will the existing owner retain the shop and sign a franchise agreement? Will another company buy its assets? Or will an investor buy shares in the company that operates it? These structures are not interchangeable. If the same company continues to operate, a change of brand neither creates a new legal entity nor removes its liabilities.

Request registration documents, a recent commercial register extract, constitutional documents where a company is involved, and evidence of the signatory’s authority. Check that the legal name matches the lease, invoices and supplier accounts; do not rely solely on the name displayed on the shopfront. If the commercial establishment is registered separately, include its documents in the review too.

Lebanon has no comprehensive franchise-specific law, nor a statutory franchise disclosure regime comparable to those in some other countries. The relationship is governed by general rules, notably the Code of Obligations and Contracts and the Commercial Code, with employment, tax, consumer protection and intellectual property laws applying as relevant. Legislative Decree No. 34 of 1967 on commercial representation may also be relevant, depending on the substance and legal classification of the relationship, rather than simply whether the agreement is labelled a ‘franchise’.

Ask a Lebanese lawyer to establish the conversion structure before making a financial commitment. The aim is not merely to collect paperwork, but to identify which person or entity will own the assets, operate the shop and be liable for claims.

2. Map out existing liabilities

Ask the shop owner for an organised schedule of liabilities, supported by documents, and specify the date to which it relates. Do not rely on a statement that ‘the shop is debt-free’ without a breakdown that includes amounts which may become payable later in respect of an earlier period.

The review should cover four categories:

• Suppliers and finance: unpaid invoices, advance payments, leased or financed equipment, and any related guarantees or security.
• Premises and services: rent, deposits, maintenance contracts and subscriptions, and restrictions on alterations to the shopfront or use of the premises.
• Employees and public authorities: employment contracts, outstanding payments, tax registrations and filings, and the status of contributions to the National Social Security Fund, as applicable.
• Customers: outstanding orders, deposits received, paid-for vouchers, warranties and commitments that have yet to be fulfilled.

For each item, record the counterparty’s name, the amount or how it is calculated, the due date, the supporting document and who is proposed to take responsibility for resolving it. Record existing disputes and potential claims separately so that they do not disappear into an overall balance.

Signing a declaration between the franchisor and franchisee does not extinguish the rights of creditors, employees or customers. Allocating responsibility in the agreement governs the relationship between its parties, but does not replace third-party consent or override mandatory legal provisions.

3. Separate stock and equipment from customer commitments

Carry out a joint stocktake before conversion. Divide stock into items that can be used within the franchise system, items requiring approval, and items to be returned or excluded. Record quantities, condition, ownership and the basis of valuation, rather than accepting an overall figure supplied by the shop owner.

Review equipment in the same way. The presence of a machine on the premises does not establish ownership or its suitability for the new system. Request proof of ownership or the agreement permitting its use, establish who will pay for repairs or replacement, and specify whether approval depends on a technical inspection. Do not treat the signing of the franchise agreement as automatic acceptance of all assets.

Customer commitments need a separate transition register. For example, if the shop sold gift vouchers before conversion, establish who will fund their redemption, how redemption will be documented, and how they will be accounted for when calculating sales under the agreement. The same applies to orders that have been paid for but not yet delivered.

Staff should know how to handle these situations before the signage changes. Customers may regard the new brand as responsible in practice, even where legal responsibility lies elsewhere, so avoid leaving staff to improvise at the till.

4. Make conversion conditional on resolving critical issues

Turn the findings of the review into conditions that must be met before the shop is allowed to use the brand. These may include settling specified arrears, obtaining consent required under the lease, completing equipment ownership documentation, or approving a list of outstanding pre-conversion orders. For each condition, assign responsibility, specify evidence of completion and set a deadline, with clear provisions for what happens if it is not met.

Also review any necessary updates to the commercial register. Changes to the nature or ownership of the business must be registered within the prescribed deadlines; the guide to doing business in Lebanon states a two-month deadline for these changes. Changing the sign alone, however, does not complete all the formalities. What is required depends on the transaction’s legal structure and the actual changes involved.

On the transition date, sign a handover record covering the final inventory, outstanding orders, payments received in advance, unresolved matters and how they will be settled. Retain documents that allow transactions before conversion to be distinguished from those afterwards.

The practical takeaway: Do not bring an existing shop into a franchise network on the strength of its sales and location alone. Make the liabilities schedule, inventory and handover record explicit conditions of conversion. The new shopfront should open with clearly understood responsibilities, not surprises waiting to surface.