07-12-2012

Limited Liability Company (Limited By Shares)

Authors

  • Demosthenes Mavrellis, LL.B (London), LL.M (Georgetown), Advocate
    Partner at Chrysses Demetriades & Co LLC

Which is the key piece of legislation governing cypriot limited companies?

The cypriot companies, both private and public operate under the provisions of the Cyprus Companies Law, Cap. 113, which is based on the old 1948 English Companies Act, but which has since been modified to incorporate EU legislation requirements.

What is the liability of a shareholder of a cyprus limited company?

The liability of the company is restricted by its assets. Persons dealing with the company may not have recourse to the assets of the shareholders (“members”) of the company who are liable only to the extent of their contribution to the capital of the company. The Court may, in extremely rare instances, lift the corporate veil and allow such recourse.

Are there any number/age and nationality residency restrictions applicable on shareholders?

A company may have as few as one member. A public limited company (“PLC”) must have at least 7 members. A private company, however, may only have up to 50 members, as its Articles of Association would by definition prohibit a greater number of members. There are no such restrictions on PLCs. There are no nationality, residency or age limitations.

What is the minimum share capital required to establish a cypriot limited company?

There is no minimum capital for a private limited company. For a PLC the minimum capital is at least 25,650 euro.

How is a cypriot limited company established?

The first step is an application to the Registrar to approve the company’s proposed name. Following that, the company is established by filing certain forms to the Cyprus Registrar of Companies (the “Registrar”), alongside with the company’s Memorandum and Articles of Association. An application from a PLC must be accompanied by a statement in lieu of prospectus.

What assets can be contributed to a limited company?

Asset contributions may be comprised either in cash or in kind and they can be accounted for either as capital contributions which require the issue of new shares to the shareholders, issued at the nominal value of the contributions, pro-rata to the shareholders or as partly nominal and partly as part of the company’s premium account. In private companies contributions in kind do not require expert appraisal, however, contributions otherwise than in cash in case of PLCs require expert appraisal and valuation.

Is there an upper or lower threshold for the issue of the shares?

The par value of the shares in which the share capital is divided can be as low as Euro 0.01. No shares in the same class may be issued nominally at a different par value, but shares may be issued at a higher value with the difference being accounted in the company’s premium account. The company is not generally allowed to issue shares below par value. In exceptional cases that may be authorized by the Court.

How are the initial share capital and any increase of the share capital paid up?

In the case of a PLC, it is mandated that the share capital of the company is paid up within on incorporation or at least on the date in which the submission of the statutory report is submitted and the company receives the necessary certificate required to commence trading. There is no similar provision for private companies. Contribution in kind, encompassing various setting- up expenses paid by the member, is allowed.

Can a limited company acquire its own shares?

A private company may not acquire its own shares. A PLC may acquire its own shares to a certain extent and within a specific time frame if its Articles of Association allow it and it is authorized by a Special Resolution of the company (being at least 75% of the shares voting at a meeting of the members). The detailed provisions regarding the purchase of the company’s own shares are to be found in Art. 57A-57F of the Companies Law.

In what way does a limited company increase or decrease its share capital?

The authorized share capital (being the maximum capital for which shares in the company may be issued at any time) of the company is increased by an Ordinary Resolution (being 50% +1 of the shares voting at a meeting of the members). If there are available authorized but unissued shares in the capital of the company and there is a decision of the members authorizing the Directors of the company to issue the same (an authorization which may last for a period not exceeding five years), the Directors may issue such shares according to the regulations of the Articles of Association, which could have specific pre-emption rights for the existing shareholders. In PLCs such pre-emption rights may be waived by the General Meeting of the company if certain majority is reached to that effect. In order to decrease the capital of the company, a Special Resolution is required and following that the proposal to decrease the share capital must be sanctioned by the Courts.

What are the administrative bodies of the limited company?

The administrative bodies of the company are the General Meeting of the members and the Board of Directors. The General Meeting represents the members of the company and decides on matters pertaining to the corporate structure of the company as mandated by law, such as the increase and decrease of the company’s capital and other matters described below. The Board of Directors of the company is responsible for the day to day management of the company’s business.

It may be possible for the Articles of Association of the company to allow certain veto rights to the members of the company but that should not fetter the ability of the Board of Directors to manage the company.

What is the minimum and maximum number of the members of the Board of Directors?

A PLC must have at least 2 Directors, a private limited company can have a sole Director. The maximum number of Directors is not fixed by law but can be imposed through the company’s Articles of Association. A limited company must also have a Secretary.

Under what terms can a legal entity be a member of the Board of Directors?

There are no legal restrictions. The company’s Articles of Association generally expressly allow corporate bodies to serve as Directors.

How are the Directors appointed or removed?

The procedure is generally governed by the company’s Articles of Association. The first Directors are generally appointed by the founding members of the company. Following that the Articles of the company will provide at what time the existing Directors will retire and be eligible for re-election. If a vacancy ensues in the Board, the existing Directors may, if the Articles so permit, appoint a Director to fill such vacancy. Any Director may be removed without cause, following a decision of 50%+1 of the shareholders in a General Meeting.

What is the term of office of the Directors?

The Directors generally have terms as prescribed by the company’s Articles.

What is the procedure for meetings of the Board of Directors?

The procedure of the meetings of the Board of Directors is governed by the Articles of the company. The Directors may or may not elect a chairman from among their numbers. The quorum of the meeting, the notice period by which Directors must be called and the majority with which particular issues must be decided is set by the company’s Articles. Unless the Articles stipulate otherwise, decisions are taken by simple majority. A meeting may be held in or out of Cyprus. Any contemporaneous linking of the Directors, using electronic means is allowed, if so provided in the Articles. Minutes of the meeting must be taken by the company Secretary. A written decision executed by all the Directors of a company has the same legal authority as a duly convened meeting.

What are the duties of the Directors?

The duties of the Directors arise out of common law and are in general the duty of care and a fiduciary duty against the company. A Director has a duty to take decisions without being negligent as to the result of their actions and to exercise due diligence as a person in their position would be expected to exercise. A Director must always act with the best interest of the company in mind. A Director should declare to the Board if they have any interest that conflicts with the interests of the company and the Article may not permit the Director to vote on such matters.

As far as the powers of the Directors are concerned, they are responsible for the day to day management and administration of the company and they must take decisions on all matters including borrowing, assuming the Articles allow it as well as hypothecating or otherwise encumbering company property for the benefit of the company or third parties. The Directors also propose, if so allowed by the company’s profit, to declare dividends. Interim dividends may also be paid following a resolution of the Board.

Matters within the exclusive competence of the company’s General Meeting.

The following matters comprise of a non-exclusive list of issues for which the members in a General Meeting.

  • alteration of the company’s Memorandum and Articles of Association;
  • alteration of the company’s capital;
  • change of the company’s name;
  • approval of the company’s Annual Accounts;
  • final approval of final dividends;
  • issues pertaining to mergers and re-organizations;
  • decisions to wind-up the company;
  • any issue or approval of the Director’s decision expressly provided to be so approved by the Articles;

In the case of a PLC only:

  • approval of a scheme to waive the pre-emption rights of existing shareholders in respect of the issue of new shares
  • approval of the acquisition of the company’s own shares.

Under what conditions is a decision of the company’s General Meeting valid?

A duly convened meeting of the company requires due notice to all members, which in the case of an annual general meeting or a meeting to approve an action for which a special resolution is required is 21 days, not counting the date in which it is dispatched and the date of the meeting. For all other matters it is 14 days. The notice must contain the agenda for the meeting and for all matters which require a special resolution, the resolution must be included verbatim in the notice for approval. Members may vote either in person or by proxy. The quorum for the meeting is set out in the company’s Articles. Once the meeting is deemed quorate decisions are generally taken by majority unless a special resolution is required.

What are the liabilities of the Directors vis-a-vis the company?

The Directors are liable in tort to the company if they are found to have acted in a manner inconsistent with their common law duty of care, i.e. they have been negligent in the contact or their duties against the company. Furthermore they are also liable for breach of fiduciary duty if they are held to have acted against the best interests of the company especially if they have sought to benefit personally from their position, depriving the company from a valid business opportunity.

Can the company release such Director from any such liability?

Any provision, whether contained in the company’s Articles of Association or in any contract between the company and the Director, stipulating that the Director is released from their liabilities against the company is by virtue of section 197 of the Companies Law, void.

What is the statutory limitation applicable in respect of an application for damages by the company against members of the Board of Directors?

The statutory limitation is 3 years.

What is the liability of the Directors vis-a-vis third parties?

As a matter of principle the Directors are not liable for contracts entered into by the company, unless they have intended to enter into such contracts with the purpose to defraud those third parties. As a matter of criminal law, the Directors are liable if the company fails to pay social security or VAT obligations, however they are not liable for the amounts owed by the company.

Which public authority exercises supervision of the cypriot limited companies?

Supervision is exercised by the Registrar of Companies which is a division of the Ministry of Trade and Industry.

GREEK LAW DIGEST Web Portal of the Republic of Cyprus CYPRUS INVEST PROMOTION AGENCY
ΝΟΜΙΚΗ ΒΙΒΛΙΟΘΗΚΗ ΚΥΠΡΙΑΚΟ ΕΜΠΟΡΙΚΟ ΚΑΙ ΒΙΟΜΗΧΑΝΙΚΟ ΕΠΙΜΕΛΗΤΗΡΙΟ CYPRUS BAR ASSOCIATION
     

 

Login

Log in to your account or