Public Company Limited By Shares


  • Maria Kyriakou, Attorney at law
    Partner at Andreas Neocleous & Co LLC

Which is the key piece of legislation governing a Cyprus public company limited by shares?

Companies limited by shares (both private and public) are principally governed by the Companies Law, Cap 113, as amended (the Companies Law), which is based on the English Companies Act of 1948, as amended to incorporate the EU Company Directives to Date.

What is the liability of the shareholders of a public limited company?

The company is a separate legal personality distinct from its shareholders. A shareholder in a limited liability company is not personally liable for any of the debts of the company, other than for the value of their shares in the company.

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

A public company must have a minimum of seven members. If it carries on business for more than six months while the number is reduced below seven, every person who is a member of the company during that time is severally liable for the payment of the whole of the company’s debts contracted during that time (Companies Law section 32).  Otherwise the law does not impose any restrictions as to age, nationality or residence on shareholders. However, some companies prohibit shareholders under the age of 18 years by provision in their articles of association or terms of issue.

What is the minimum share capital required for the establishment of a public limited company?

The minimum capital of a public company is €25,630. It must be in place before the Registrar of Companies will issue a certificate of trading.

How is a public limited company established?

A company is incorporated by submitting the requisite documents and fees to the Registrar of Companies. The documents that must be submitted include a duly signed memorandum and articles of association of the company (specifying, among other things, the name, objects, nominal share capital and the fact that the liability of members is limited), details of the registered office, names and addresses of the founding members of the company and the number of shares allocated to them, and details of the proposed directors and company secretary. The memorandum of association registers in its objects clause the activities which the company is authorised to carry on, whereas the articles of association contain the rules governing the internal management procedures of the company. A public company may be established as such or may be converted from a private limited company by alteration of the company’s memorandum and articles of association. The following requirements apply to public companies:

  • The minimum number of members is seven. There is no upper limit.
  • There must be at least two directors.
  • Andreas Neocleous & Co LLC 103
  • If directors are appointed by the company’s articles of association, the consent of these directors must be filed on incorporation.
  • The company must obtain a trading certificate from the Registrar of Companies before it can commence business (Companies Law section 104);
  • The company must have a statutory meeting and its directors must make a statutory report to the members (Companies Law section 124);
  • The company must issue a prospectus or a Statement in Lieu of Prospectus before issuing any of its shares or debentures to the public (Companies Law section 48);
  • The company must have a paid up share capital of at least €25,630.

What assets can be contributed to the share capital of a public limited company?

Assets are contributed to the share capital other than cash must have an economic value, and must be so valued in accordance with the Companies Law by one or more independent experts (Companies Law section 47B). The valuation report must be published in the official Gazette. Undertakings of obligations which relate to execution of activities or the provision of services are not deemed to be assets which can be given an economic value (Companies Law section 47B).

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

There is no upper or lower price threshold for the issue of shares.

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

Shares of a public company issued for cash contribution, must be paid up at the time of incorporation of the company or at the latest by the date of issuance of the certificate of the Registrar for the commencement of business (Companies Law section 47A(5)). No allotment shall be made of any share capital of a company offered to the public for subscription unless the amount stated in the prospectus as the minimum amount has been subscribed, and the sum payable has been paid (Companies Law section 47B(1)). The amount payable on application on each share may not be less than twenty-five percent of the nominal amount of the share. If these conditions have not been complied with in forty days after the issue of the prospectus, all money received must immediately be repaid to the applicants (Companies Law section 47(4)).

Can a public company limited by shares acquire its own shares?

A public company may by special resolution and subject to certain conditions and criteria authorise the purchase of its own shares. The maximum number of shares to be bought may not in any event exceed 10 per cent of the company’s subscribed capital and they may not be held for longer than two years. The purchase price must be paid out of realised and undistributed profits, and no voting rights or right to dividends attach to shares so acquired while they remain in the ownership of the company (Companies Law section 57).

Which corporate body is competent to decide changes to the capital of a public company limited by shares (capital increase or decrease) and under what conditions?

Subjecttoanyprovisioninitsarticlesofassociationallowitacompanymayamendtheprovisions of its memorandum regarding its capital by ordinary resolution of its shareholders so as to:

  • Increase its share capital by new shares of any amount;
  • Consolidate and divide all or any of its share capital into shares of a larger amount;
  • Convert any paid-up shares into stock and reconvert the stock into paid-up shares of any denomination;
  • Subdivide any of its shares into shares of a smaller amount; and
  • Cancel shares which have not been taken up.

Subject to any provision in its articles of association and to confirmation by the court a company may by ordinary resolution of its shareholders reduce its capital. It may also vary the rights attached to any class of shares by separate class resolutions at separate meetings of the holders of each class.

Can the share capital fall under the minimum amount of €25,630?

The minimum share capital of a public company is mandatory. A public company that loses half of its issued share capital (or a lower amount that the directors consider jeopardises its viability) must immediately convene an extraordinary general meeting in order to examine whether the company should be wound up or what other measures should be taken.

What are the administrative bodies of a public company limited by shares?

The management of a company’s business affairs is the responsibility of its elected board of directors, unless otherwise provided in its constitutional documents. The directors generally meet regularly to discuss the affairs of the company and to pass resolutions which affect the business affairs of the company. The board’s other responsibilities include the issue and transfer of shares in the company, appointment of staff and approval of the financial statements. In performing these duties, the directors must always act in good faith and exercise due care and diligence with respect to the company and its shareholders. The day to day management of the company’s affairs is left to corporate officers appointed by the Board to perform certain tasks. These officers have actual or ostensible authority to bind a company with respect to decisions or matters that a person in that position generally makes. Shareholders in a general meeting have the powers defined in the articles of association and the Companies Law.

What is the minimum and the maximum number of members of  the Board of Directors (BoD) of a public company limited by share prescribed by law?

The minimum number of directors of a public company is two. The law does not set any upper limit.

Under which conditions can a legal entity be appointed as member of the BoD?

A legal entity may be appointed as a director. It must designate a natural person as its representative.

How are the BoD members appointed and removed?

The Companies Law is silent regarding the means of appointing directors, leaving this to the articles of association. In practice the first directors are appointed by the subscribers to the memorandum, and are required to file a consent to act as a director with the Registrar of Companies. There is no requirement under the Companies Law for directors to hold shares in the company. If the articles of association provide for a share qualification, every director appointed must

acquire the shares within two months of his appointment, otherwise his office as director is deemed vacated.

What is the term of BoD members?

Most companies’ articles of association provide for the annual retirement of a certain proportion of the directors and the filling of the vacancies at an annual general meeting. Retiring directors may be re-elected. It is not uncommon for directors to be appointed for life and not to be subject to re-election. Nevertheless, section 178(1) of the Companies Law provides specifically that any director may be removed from office by an ordinary resolution of the company, not withstanding any provision in its articles of association.

What are the main duties of the BoD?

Between them the board and the members of the company in general meeting may exercise all the powers of the company. How these powers are shared between the two is determined by the articles of association, except where the Companies Law specifically reserves the exercise of certain powers to the members. The board’s powers can, therefore, be as wide or as restricted as the articles of association may provide. An act of the directors which may be ultra vires the directors but intra vires the company may be ratified by the members in general meeting in order to be valid.

What are the issues for which the General Meeting of Shareholders is exclusively competent to decide?

All companies are required to hold, in each calendar year, an annual general meeting specified as such in the notice convening it. The only statutory business required to be transacted at an annual general meeting is the appointment of the company’s auditors. However, most companies’ articles of association provide for certain business to be transacted annually at the annual general meeting, including the appointment of directors in place of those retiring, the declaration of dividends, the consideration of accounts and the fixing of the auditor’s remuneration. Business of this nature is generally referred to as ordinary business, and any other business as special business.

Under what conditions is a decision of the General Meeting of the shareholders valid?

For a decision to be valid proper notice must have been given. An annual general meeting or a meeting to pass a special resolution requires 21 days’notice and other meetings require 14 days’ notice. The notice period means clear days, i.e. excluding both the day of service and the day of the meeting and the notice must be in writing. Special notice of 28 days is required for a resolution to appoint as auditor a person other than the retiring auditor or to provide expressly that the latter should not be reappointed. For an annual general meeting a shorter notice period may be agreed by all members entitled to attend and vote at the meeting. For other meetings a shorter notice period may be validly agreed by not less than 95 per cent of members entitled to attend and vote. In order to transact business the required quorum of members must be present in person or by proxy. If a quorum is not present the meeting will be a nullity. Unless the articles of association provide otherwise three members personally present will be a quorum for a public limited company. For meetings convened by the company, if no quorum is present within half an hour of the appointed time the meeting will stand adjourned for one week, when the members present shall be deemed to constitute a quorum. However, if the meeting was convened on the requisition of members it will be dissolved and not adjourned. Unless the articles of association provide otherwise, voting is initially on a show of hands, with each member having only one vote, regardless of the size of shareholding. Any member may demand a poll, on which members present can vote according to their shareholdings and proxy votes can be used. Most resolutions may be passed by a simple majority but certain matters may be approved only by an extraordinary resolution or a special resolution, both of which require a three fourths majority of those voting. Resolutions in a compromise or arrangement require a majority in number representing three-quarters in value of the members or class of members in order to be binding.

What exactly is the internal liability of the BoD members?

Fiduciary duties

In general directors owe a duty to their company to manage it in accordance with the provisions of the law and with the memorandum and articles of association. They are liable to the company for loss caused by illegal or ultra vires acts. The fiduciary duties owed by directors have been examined on a number of occasions, particularly where the company concerned has been involved in a take-over bid.

Duty of skill and care

In addition to their fiduciary duties, directors owe a duty of care at common law not to act negligently in managing the affairs of the company. The standard required may be higher in the case of directors employed in a professional capacity or who are qualified or experienced in some relevant discipline.

Statutory duties

Directorsareunderastatutorydutytodiscloseandrecordinaregister:directors’shareholdings, director’s salaries and pensions and loans to officers, including directors. Directors who are directly or indirectly interested in a contract or proposed contract with the company must declare the nature of their interest (Companies Law section 191).

Under which conditions can BoD members be released from their (internal) liability?

If a director has an interest in an entity with which the company contracts, his fiduciary duty to the company requires him to give proper notice of that interest to the board or the company. His failure to do so may entitle the company to rescind the contract, provided it is possible to restore the status quo. Alternatively, the articles of association may authorise such a contract whether or not prior notice has been given by the director, or the company in a general meeting may ratify the contract.

Under which conditions may the company waive its claims against a BoD member for damages it suffered as a result of his/her unlawful action?

In addition to imposing duties and liabilities on directors, the Companies Law gives protective relief to directors in certain cases. In any proceedings against a director for negligence, default, breach of duty or breach of trust, if the director who is or may be liable has in the opinion of the court acted honestly and reasonably and, having regard to all the circumstances of the case, ought fairly to be excused, the court may wholly or partly relieve him from his liability on such terms as the court thinks fit (Companies Law section 383(1)).

What exactly is the external liability of the BoD members?

If, in the course of winding up, it appears that any business of the company has been carried on with intent to defraud creditors or for any fraudulent purpose, the court may declare any of the directors who were knowingly parties to the fraud to be personally responsible for all the debts of the company (Companies Law section 311(1)). Intent to defraud creditors is a subjective test, and there must be enough evidence to justify a finding of fraud, i.e. actual dishonesty, A director is liable to repay or restore money or property with interest to the company if, in the course of winding up, it appears that the director has misapplied, retained or become liable or account able for any money or property of the company or has been guilty of any misfeasance or breach of trust in relation to the company.

Which public authority exercises the government supervision on public Companies Limited by shares?

Public limited companies are registered at the office of the Registrar of Companies who sees that they comply with the Companies Law. Also the Cyprus Stock Exchange and the Capital Market Commission regulate the market.




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