Add Your Heading Text Here
In Lebanese commercial law, security shares in joint-stock companies represent a specific category of nominal shares, primarily intended to serve as a guarantee of responsibility for members of the Board of Directors.
Before the amendments introduced by Law No. 126/2019, the law required each board member to deposit a number of shares, fully and exclusively, as a form of security for their management duties. This obligation wasn’t symbolic: it reflected the underlying principle that board members must not only be shareholders but must also put forward their own stake to ensure accountability in case of mismanagement or harm to the company.
Importantly, the liability of board members under the previous law was joint and several, meaning that even those not directly responsible for a damaging act could be held accountable, based on the collective nature of their secured roles. And as long as they served on the board, they were required to maintain ownership of those security shares.
However, the 2019 amendment to the Lebanese Commercial Code, specifically to Article 147, changed this structure significantly. It now permits the election of non-shareholders to the Board of Directors.
On one hand, this change opens the door to appointing individuals with strong qualifications, academic backgrounds, and management expertise, regardless of whether they hold equity in the company. This can strengthen governance by bringing in skilled professionals who may otherwise have been excluded.
But on the other hand, it eliminates an important safeguard: the security share requirement, which previously ensured that board members had something at stake, both financially and legally. With non-shareholders now eligible for board positions, the law no longer offers the same mechanism to guarantee accountability through share-based liability.
This naturally raises a critical question:
How can non-shareholding board members now be held accountable for administrative errors or harmful actions, especially when the share-based guarantee is no longer applicable?
At Issa Mansour Law Office, we believe this is not just a legal matter, but a governance issue that companies must proactively address in their internal statutes and by-laws. These developments highlight the need for companies to revisit their governance structures and ensure alignment with the amended legal framework.