The regulations governing the formation and operation of the companies in the Republic of Cyprus include the Companies Law (Cap 113 of the Companies Law), as well as certain regulations of Subsidiary Legislation and General Civil Law. Cyprus Companies Law is largely based on the UK Companies Act of 1948, as amended since its entry into force.
Main types of companies
The main types of limited liability companies in Cyprus are public and private companies, limited by the shares and guarantees. The most common type is a private limited liability company.
Minimum requirements for the authorized capital of companies
Public companies must have a minimum issued share capital of at least EUR 25,629. There are no minimum requirements for private companies. However, it is recommended to register companies with a minimum share capital of € 1,000 divided into 1,000 shares of € 1 each. The share capital can be expressed in any currency.
Shares and other participation instruments that may be issued by a company
The most common type of shares is common shares. The rights conferred by common shares are determined by the company’s Charter. Companies also frequently release:
- Preferred shares, which take precedence over other shares in either dividend, equity, or both, but have limited voting rights.
- Redeemable preferred shares, which can be redeemed at the discretion of the company or their holder in accordance with the terms of their issue.
Companies can also issue the instruments that give the right to subscribe to the shares or convert them into equity, such as options, warrants, and convertible bonds. These instruments do not form part of the equity of the company before conversion.
Requirements for the company name
The name under which the company will be registered must be approved by the Registrar of Companies (hereinafter the "Registrar"). The name of the company can be changed at any time after the registration.
Goals and activities of the company
Every Cypriot company must have a Memorandum of Association, which will indicate the purposes for which the company is established. The activities of the company should be detailed in its Charter.
Shareholders of the company
Pursuant to section 170 of the Companies Law, a private limited liability company must have at least one and not more than 50 shareholders. A public company must have at least seven shareholders. There are no restrictions on the citizenship of the shareholders and both individuals and legal entities can be the shareholders of a Cyprus company.
Each company should have a Charter, which, in fact, defines the main directions of the company's activities, as well as how the management and activities of the company will be organized.
Requirements for the Directors of the company
Cyprus companies are managed and controlled by a Board of Directors. A private Cypriot company must have at least one Director and a public company must have at least two. There are no restrictions on the citizenship of the Directors and both individuals and legal entities can be the Directors of a Cypriot company.
Tax status of the company
The management and control of a Cyprus company determines the tax status of the company. Therefore, it is accepted that the majority of the Directors are residents of Cyprus, and the meetings of the Board of Directors are held in Cyprus.
Company Secretary and registered office address
Every Cypriot company must have a Secretary and a registered office in Cyprus.
General rights of the shareholders
General rights of the shareholders depend on the rights associated with the shares they hold, as defined by the Charter of the respective company.
Changes in the rights to the shares are also governed by the company's Charter, which generally provides that the rights assigned to the shares of any class may vary depending on:
- The written consent of 75% of the holders of the issued shares of this class.
- An extraordinary decision taken at a separate general meeting of the shareholders.
General meeting of the shareholders
Cyprus companies must hold an annual general meeting at least once a year. The first annual general meeting should be held within 18 months from the date of the registration of the company. No more than 15 months must elapse between the date of one annual general meeting and the next one. General meetings can be held using communication or written/electronic approval if provided for by the company's Charter.
Unless otherwise provided by the provisions of the company’s Charter, any decision put to a vote at the general meeting will be taken by show of hands.
Any shareholder of the company who has the right to attend and vote at a meeting of the company has the right to appoint another person as his trustee to attend and vote in his place.
Shareholders’ rights in relation to the Directors
The procedure for appointing the Directors is determined by the company's Charter. Typically, the first Directors of the company are appointed in writing by the signatories of the Memorandum of Association or by the majority of them. Future Directors are appointed by a resolution of the shareholders at a general meeting (usually during the company's annual general meeting). It is also common for the Directors to have some authority to appoint other Directors either to fill an occasional vacancy or to complement the existing Directors. The possibility of re-election is determined by the Charter. All the Directors must be elected by the shareholders at the first annual general meeting after their appointment and be re-elected at least three years later.
Can the shareholders dispute the decision of the Board of Directors?
In some cases, the shareholders have the right to dispute the decision of the Board of the Directors in court.
Obligations and responsibilities of the Directors to the company and the shareholders
The Directors are required to manage their company in accordance with the provisions of the Companies Law and the company’s Charter. They are liable to the company for actions that are illegal or ultra vires (beyond their authority).
Are certain rules applied to the Directors in the event of a conflict of interest in relation to the company?
It is generally believed that the Directors have fiduciary responsibilities towards the company and should not put their personal interests ahead of the company’s interests. A Director who uses corporate property or information to advance his personal interests is liable for the damages caused to the company.
Should the Board of Directors include a certain number of non-executive, supervisory, or independent Directors?
The requirement for a certain number of non-executive, supervisory, or independent Directors is determined (for non-listed and unregulated companies) in accordance with the company's Charter.
Company Directors remuneration
The Directors are officers and agents of the company and, unless there is a specific agreement with the company, they are not employees and are not eligible for remuneration. However, the company’s Charter usually states that the Directors are entitled to remuneration determined by the general meeting of the company. Company auditors The first auditors of the company can be appointed by the Directors at any time before the first annual general meeting. They carry out their duties until the end of the meeting. At each annual general meeting, the company must appoint auditors for the period from the end of that meeting until the close of the next annual general meeting. No person can be appointed as an auditor of a company unless he is licensed under the Auditors Law 2017 (Law 53 (I)/2017).
Responsibility of the auditors to the company
Auditors can be held liable to the company and its shareholders for negligence, default, and breach of trust. They may also be held liable for the misrepresentation of the information through negligence to the persons relying on the verified accounts. The amount of the auditor's liability for the negligence, breach of duties, and mistrust of the statutory audit of the company cannot exceed the amount agreed upon as the auditor's remuneration for the corresponding financial year, increased by 7 (seven) times. These restrictions do not apply in the event of a deliberate default by the auditor.
Disclosure of the information about the company
The scope and procedure for disclosing the information about the company to the company's shareholders is determined by the Companies Law and the company’s Charter, Securities Law (for listed companies) and other regulations governing the activities of Cypriot companies depending on their area of operation.
Corporate governance system and code
The most common corporate governance system is based on the UK Corporate Governance Code, where the Directors in a single board are collectively responsible for the success of the company. The Council of the Cyprus Stock Exchange (CSE) has issued a voluntary Corporate Governance Code for the companies listed on the CSE.
As a rule, shareholder agreements contain the provisions regarding the financing and operations of the company, the Board of Directors, the issue and transfer of the shares, competition, etc.
Contracts' confidentiality rules apply to the agreements entered into under the Law of Cyprus. In cases specified by the Law shareholders' agreements must be registered with the Registrar of Companies.
In private companies, the company may declare dividends at a general meeting. The dividends can only be declared out of profit. Subject to any special rights in relation to the dividends, all the dividends must be declared and distributed in accordance with the amounts allocated or credited to the shares on which the dividends are to be distributed.
Funding and participation in the share capital
The shareholders can provide the security interests in their shares. The main types of security that can be provided for the shares are pledges of the share certificates, fees, assignment of the rights, and pledge rights. The right to provide security for the share and share certificates may be limited by the articles of the company’s Charter.
It is unlawful for a company to provide any financial assistance in connection with a purchase or subscription made or realized by any person in relation to any stock in the company (the Companies Law).
Transfer of the shares and withdrawal from the shareholders
A private company must restrict the right to transfer its shares in its Charter. The shares of the company can be transferred in the manner prescribed by the Charter of the company.
Can companies buy back their shares? Limitations
Private companies are prohibited from purchasing their own shares. Public companies can purchase their own shares either directly or through a person acting on their own behalf, but on behalf of the company, if permitted by its Charter and the conditions set out in the Law are met.
The exit of the shareholders from the company. Redemption of the shares
The shareholders usually leave the company by selling their shares to a third party, subject to any special provisions in the Charter or any shareholder agreement.
The shareholders do not have the right to pre-approve the sale of a business unless provided for by the company's Charter. For mergers, cross-border mergers, and business sales the transaction must be approved by the shareholders (for both private and public companies).
Insolvency (bankruptcy) of a company
The shareholders are entitled to receive a portion of the capital or assets of the company upon liquidation in accordance with their ownership interest and any special rights. However, this distribution can be made on the condition that the company retains the surplus after the assets have been paid out in accordance with the distribution procedure established by the Law.
The Companies Law grants the shareholders the right to decide on the voluntary termination of the company. Voluntary termination of the activities is considered to have begun after the decision has been taken. The shareholders appoint a liquidator to liquidate the company and distribute its assets. The shareholders can also set his remuneration. In the event of voluntary termination of the activities, the company ceases to operate, except in cases where this may be necessary to ensure its successful termination. The Directors' powers are terminated and any transfer of the shares or change in the status of the shareholders is void.
Corporate groups (corporations)
The Companies Law recognizes the concept of a corporate group as it defines a “group of companies” as “a group of companies consisting of a holding company and a subsidiary company or companies” (section 2 of the Companies Law). A company is considered the holding company of another company only if that other company is its subsidiary (section 148 (4) of the Companies Law).
Mutual influence and responsibility of the holding and subsidiary companies
The controlling company has no obligation or liability to the shareholders of the company it controls. A subsidiary is prohibited from owning the shares in its holding company. Any distribution or transfer of the shares in the subsidiary is void.
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