In brief: Free management (or lease-management) is an agreement by which the owner of a business grants its operation to a free manager who runs it at their own risk and profit. Governed by Articles 152 to 158 of the Moroccan Commercial Code, this arrangement imposes strict conditions: the lessor must have operated the business for a minimum of two years, publication in the Journal d’Annonces Légales (JAL) must occur within 15 days, and the lessor remains jointly liable for operating debts for six months following publication.
Definition and legal framework of free management (Art. 152)
Free management, also called lease-management, is defined by Article 152 of the Commercial Code as a contract by which the owner or operator of a business grants its total or partial lease to a manager who operates it at their own risk and profit.
This arrangement is fundamentally different from salaried management: the free manager is an independent trader, registered in their own name in the trade register, and who personally bears the risks of the operation. They acquire the status of trader with all the obligations that entails.
Lease-management covers the business as a whole — clientele, right to lease, trade name, sign, equipment and fittings — and not merely the commercial premises. It should not be confused with the commercial lease, which covers only the premises.
Practical interest of free management
Free management is of considerable interest in several situations:
- Temporary inability of the owner to operate the business (illness, other activity)
- Gradual transfer of the business to a potential buyer
- Minor heirs or heirs who do not wish to operate the business themselves
- Generating value from a business without the owner’s time investment
- Probationary period before a definitive sale of the business
Conditions for establishing free management (Art. 153-154)
Condition relating to the lessor: two years of prior operation
Article 153 of the Commercial Code requires that the business owner must have personally operated the business for a minimum period of two years. This condition aims to prevent speculation on businesses and to ensure that the business is indeed viable.
However, the legislator has provided for exceptions to this two-year rule:
- Heirs or legatees of a deceased trader
- Persons subject to incapacity to engage in commerce (prohibited persons, undischarged bankrupts)
- Cases where the court authorizes free management for legitimate reasons
Capacity of the free manager
The free manager must have commercial capacity since they acquire the status of trader. They must be of legal age, not be subject to any prohibition or disqualification from commerce, and not be subject to any incompatibility with the practice of commerce.
Publicity formalities (Art. 155)
The establishment of free management is subject to mandatory publicity formalities designed to protect third parties, particularly the lessor’s creditors.
Publication in the Journal d’Annonces Légales
Article 155 of the Commercial Code requires the publication of an extract of the free management contract in a Journal d’Annonces Légales (JAL) within fifteen days of the date of the contract. This extract must mention:
- The identity of the lessor and the free manager
- The nature and registered office of the business
- The duration of the free management
- The effective date
Amended entry in the trade register
The lessor must make an amended entry in the trade register to indicate the establishment of free management. For their part, the free manager must register in the trade register in their own name.
Obligations of the free manager
The free manager, as an independent trader, is subject to a set of strict obligations:
Registration in the trade register
The free manager must proceed with their own registration in the trade register (Art. 155). This registration is separate from that of the lessor and grants the free manager the official status of trader.
Maintaining proper accounting records
Like any trader, the free manager is required to maintain accounting records in compliance with current standards. They must prepare their own financial statements (balance sheet, income statement, etc.) and retain their accounting documents for ten years.
Mandatory mention of the status of “free manager”
Article 155 requires the free manager to mention their status of “free manager of the business” on all commercial documents: invoices, purchase orders, correspondence, etc. This mention enables third parties to know the exact legal status of the operation.
Respect for the business
The free manager must operate the business as a prudent manager, maintain the clientele and not change the purpose of the business without the lessor’s consent. They may neither sell the business nor sub-lease it, unless the contract provides otherwise.
Joint liability of the lessor (Art. 156)
Article 156 of the Commercial Code provides for a particularly important creditor protection mechanism: the lessor of the business remains jointly liable with the free manager for debts contracted by the latter in connection with the operation of the business.
This joint liability takes effect for a period of six months from the date of publication of the free management contract in the JAL. After this period, the lessor is released from any joint liability for future debts.
Practical consequences of joint liability
- Creditors of the free manager may pursue the lessor during the first six months
- The lessor has an interest in ensuring the solvency of the free manager before entering into the contract
- Publication in the JAL constitutes the starting point of the six-month period
Acceleration of term debts
Article 157 specifies that the establishment of free management may trigger the acceleration of term for the lessor’s debts relating to the operation of the business. The commercial court may, at the request of any creditor, pronounce this acceleration if it considers that the free management jeopardizes the recovery of debts.
Termination of free management
Grounds for termination
Free management terminates in the following cases:
- Expiry of the agreed term of the contract
- Termination for breach of obligations by either party
- Death of the free manager (unless there is a clause for continuation with the heirs)
- Judicial reorganization or liquidation of the free manager
- Purchase of the business by the free manager
Return of the business
At the end of the free management, the free manager must return the business to the lessor in the condition in which they received it, taking into account normal wear and tear. The free manager cannot claim any compensation for any increase in the value of the business, unless otherwise agreed.
Fate of employment contracts
In accordance with Article 19 of the Labour Code, employment contracts in effect at the time of the end of the free management continue with the lessor who resumes operation of the business. Employees benefit from the preservation of their acquired rights (seniority, salary, benefits).
Taxation of free management
Taxation of profits
The tax regime of the free manager depends on their legal form:
- Individual: profits are subject to professional income tax (IR) under the net actual income regime (RNR) or the simplified net income regime (RNS)
- Company (SARL, SA, etc.): profits are subject to corporate tax (IS) under the proportional rate schedule in effect
The lessor, for their part, is taxed on the lease-management royalties they receive, as professional income.
Professional tax
The free manager is liable for professional tax in their own name, based on the rental value of the elements of the business they operate.
VAT
Operations carried out by the free manager in the course of operating the business are subject to VAT under standard conditions. Lease-management royalties paid to the lessor are also subject to VAT.
Upsilon Consulting, a member of the Order of Chartered Accountants, assists you in the legal and tax structuring of your lease-management operations. Contact our experts for personalized advice.
Frequently asked questions
What is the difference between free management and salaried management?
Free management grants the manager the status of independent trader: they operate the business at their own risk and profit, register in the trade register in their own name and bear any losses. Salaried management, on the other hand, designates an agent of the owner who operates the business on behalf of the latter in exchange for a salary. The salaried manager does not have the status of trader and the owner remains responsible for the operation.
Can the free manager sell the business?
No, the free manager cannot sell the business that does not belong to them. They also cannot sub-lease it without the express consent of the lessor. Any sale of the business is exclusively the prerogative of the owner. However, the free manager may assign their right to free management (the contract itself) if the contract so provides or with the lessor’s consent.
What happens if the free management contract is not published in the JAL?
Failure to publish in the Journal d’Annonces Légales has significant consequences: the lessor’s joint liability for the free manager’s operating debts extends indefinitely, instead of being limited to six months. The lessor remains exposed to claims by the free manager’s creditors throughout the duration of the free management. It is therefore imperative to comply with the 15-day publication deadline provided for by Article 155.
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- Commercial lease in Morocco: renewal and eviction indemnity
- Trader status in Morocco
- Professional tax in Morocco
- Company domiciliation in Morocco
- Starting a business in Morocco: complete guide
This article is written by the team of chartered accountants at Upsilon Consulting, a firm registered with the Order of Chartered Accountants (OEC) of Morocco.
Need assistance in structuring a lease-management operation? Contact Upsilon Consulting for tailored advice.
