The essential Corporate Law in Cyprus

These are the highlights if you want to know more about the essential Corporate Law in Cyprus. This entry was drafted by Michael Damianos & Co LLC. Link to E-Iure Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case Michael Damianos & Co LLC is an excellent option in Cyprus.

Corporate

Cyprus is an ideal international business centre for all kind of businesses and individuals. One should careful consider the structure of the relevant entity before proceeding with its incorporation. There are the following legal entities/vehicles under Cyprus law:

Private limited company
The most common legal entity/vehicle for carrying out business in Cyprus is the private limited company and the main characteristics of such a company are the following:

• The company is an entity with a separate and distinct personality from its members and the liability of its members is limited to their share contribution.
• The minimum number of shareholders is one and the maximum number is fifty.
• Invitations to the public for acquiring shares or debentures are strictly prohibited.
• Issuance of bearer shares is prohibited.
• There is no minimum issued and paid up share capital for companies, but some share capital must exist.
• The Company must have a registered office in Cyprus.
• The Company must have a secretary, who may be local or foreign, natural or legal person. It is customary for compliance purposes for the secretary to be local.
• The minimum number of directors is one and there is no maximum number. Directors may be local or foreign, natural or legal persons. However, it is suggested that the majority of directors are Cypriot residents so as to ensure that the company is managed and controlled in Cyprus in order for the Company to be considered Cyprus resident for tax purposes and be able to benefit from relevant double tax treaties.
• Meetings of shareholders and board of directors may be held anywhere in the world, but for tax purposes it is advisable for, at least board meetings, to be held in Cyprus.
• The company must have a memorandum and articles of association prepared by a lawyer in Cyprus, which must be signed by the subscribers and filed with the Registrar of Companies in Cyprus.
• The company’s articles of association must provide for some restrictions for transferring shares.

Public limited company

This is a more regulated type of entity and it is usually used either when the company has a large number of shareholders or when it has to be listed in a stock exchange in Cyprus or abroad. Its main characteristics are the following:

• The company is an entity with a separate and distinct personality from its members and the liability of its members is limited to their share contribution.
• The minimum number of shareholders is seven and there is no maximum.
• The minimum number of directors is two and there is no maximum number. Directors may be local or foreign, natural or legal persons. However, it is suggested that the majority of directors are Cypriot residents so as to ensure that the company is managed and controlled in Cyprus in order for the Company to be considered Cyprus resident for tax purposes and be able to benefit from relevant double tax treaties.
• The minimum amount of share capital is €25,629.
• Invitations to the public for subscribing for shares or debentures are allowed.
• Issuance of bearer shares is prohibited.
• The Company must have a registered office in Cyprus.
• The Company must have a secretary, who may be local or foreign, natural or legal person. It is customary for compliance purposes for the secretary to be local.
• Meetings of shareholders and board of directors may be held anywhere in the world, but for tax purposes it is advisable for, at least board meetings, to be held in Cyprus.
• The company must have a memorandum and articles of association prepared by a lawyer in Cyprus, which must be signed by the subscribers and filed with the Registrar of Companies in Cyprus.
• There is no restriction in transferring shares.

Company limited by guarantee

A company limited by guarantee is a private company in which the liability of its members is limited by the memorandum to the amount that the members undertake to contribute to the assets of the company in the event of the company’s winding up.
This type of company is mostly used for associations, charities and for the promotion of non-profitable interests such as education, art, science and sports.
The memorandum of a company limited by guarantee must contain a provision stating that each of its members undertakes to contribute to the company’s assets in the event of it being wound up while she/he is a member, or within one year after she/he ceases to be a member, a sum which will not exceed a specified amount.
It should be noted that the guarantee applies in relation to amounts with respect to the debts and liabilities of the company and the costs of it being wound up. Also, past members of the company are only liable for the company’s debts and liabilities which occurred before they ceased to be members.
A company limited by guarantee may be incorporated with or without any share capital. A company limited by guarantee without any share capital constitutes the guarantee company in its pure form, whilst a company limited by guarantee with a share capital is a hybrid form of company which combines elements of both the guarantee and the share company.
Needless to say, this is an unusual type of company since it is not used for business purposes.

Partnerships

A partnership is a relationship between two persons (legal persons or natural persons) or more who carry out business together with the purpose of obtaining profit.
Traditionally, Cyprus law allows for general and limited partnerships, but since October 2015 the law provides for partnerships limited by shares.
In a General Partnership all partners are equally and jointly liable with all the other partners for all the debts and obligations of the partnership.
In a Limited Partnership one of the partners (the general partner) is liable for all the debts and obligations of the partnership while the remaining partners (the limited partners) may have limited liability up to the amount they have contributed.

In terms of a Partnership Limited by Shares, which has been also defined as a partnership, having a share capital, the liability of the limited partners is limited up to the amount which remains unpaid (if any), on the shares that they hold (which is just like with companies).

An important distinction which needs to be pointed out between any limited partnership under Cyprus Law and a public or private company limited by shares is that the partnership is not considered as a legal entity with a personality separate and distinct from its partners as it applies in companies limited by shares. Basically, the actions of a partnership are the actions of its partners acting in their personal capacity and in this respect the partners shall be liable in case of an action against the limited partnership.
In light of the fact that a partnership is not a separate legal entity, when taxation arises it is the partners who are subject to taxation and not the partnership per se. The typical tax treatment of a partnership is that the income of the partnership is considered as income of the actual partners. Each partner’s share of profit is added to their overall income and shall be taxed accordingly as personal income/corporation tax under the applicable tax laws of Cyprus.

Cyprus International Trusts

A Cyprus International Trust (a “Trust”) can be defined as the obligation which is placed upon a trustee by the settlor to manage the trust property for the benefit of the beneficiaries in accordance with the relevant trust deed. Trusts are commonly found in common law jurisdictions.
The settlor of the Trust and the beneficiaries must not be residents in Cyprus during the year immediately preceding the creation of the trust while the trustee, or at least one of the trustees, must be resident in Cyprus for the whole duration of the Trust (and she/he must be a licensed trustee such as a lawyer or an accountant). A Trust may last for an indefinite period. The settlor has the right to reserve many powers including, the powers to revoke or amend the trust, to appoint and remove trustees and protectors, to change the law regulating the Trust or the place of its administration. The trustees of a Trust are bound by confidentiality and cannot disclose information unless they are ordered by a Cyprus Court in special circumstances.
Trusts are usually set up for wealth management purposes and family arrangements, such as to hold property for minors.
It should be noted that other than Cyprus International Trusts, Cyprus law allows the creation of local trusts, where the basis is the similar but not identical, which is something that is beyond the scope of this note.

Foundations and Societies

Foundations and societies are not really business vehicles and are only used for charitable or non-business purposes.
With respect to foundations, these are entities dedicated to a specific non-profit purpose such as the prevention of poverty or the promotion of education or health.
With respect to societies, there are entities where at least twenty people contract for the achievement of a non-profitable purpose and it does not include political parties or trade unions.

Needless to say, these types of organisations are uncommon for international businesses.