|
||||||||||||||
|
||||||||||||||
Copyright 2007. All rights Reserved
From 1878 until 1960 when it became independent, Cyprus was a possession of Great Britain. The legal system of Cyprus derives from the common law tradition so that there is no civil code such as the civil code of Greece. Cyprus company law is based on English company law. English jurisprudence on company law serves as precedent and persuasive authority for Cyprus company law.
The fundament legislation that governs the formation, existence and governance of corporate entities in Cyprus is based on the Companies Act of 1948 of the United Kingdom. Cyprus has not adopted the reforms set forth in the Companies Act 1967 of the United Kingdom nor any subsequent company law modifications.
1. Private Company Limited by Shares
A private company limited by shares (CLS-Private) is a company in which the liability of the shareholders is limited to the value of the consideration paid by the shareholder for the shares. In U.S. legal terms, the shareholders have limited liability so that creditors of a CLS-Private cannot satisfy a judgment against the CLS-Private out of the personal assets of the shareholder. The CLS-Private is the functional equivalent of the closely held corporation in the U.S. A CLS-Private must have at least two shareholders at all times. If it ever has less than two shareholders, the surviving shareholder is no longer afforded limited liability. To qualify as CLS-Private, the Articles of Association must restrict the right of a shareholder to transfer its shares, limit the number of shareholders to 50 and prohibit the sale of any securities of the company to the public.
A CLS-Private can be an exempt company if no body corporate holds any of its securities, no person other than a shareholder has any interest in the shares of that shareholder, no more than 50 individuals hold securities of the company and no body corporate is a director of the company and none of its directors is party to any arrangement under which the policy of the company is capable of being determined by any person other than the directors and shareholders of the company.
The benefits of an exempt CLS-Private are that the annual financial statements need not be certified by a director and the secretary of the company, the resolutions and agreements required to be filed with the government can be filed on forms prepared by the company rather than printed forms, the company auditor may be a person who does not possess the statutory qualifications to act as auditor and the statutory prohibition against making loans to directors does not apply.
2. Public Company Limited by Shares
A public company limited by shares (CLS-Public) is a company limited by shares which does not contain the restrictive and limiting conditions in its Articles of Association that are required in the Articles of Association of a CLS-Private. A CLS-Public must have at least 7 shareholders at all times. If at any time it has less than seven shareholders, then the remaining shareholders are no longer afforded limited liability. A CLS- Public can issue shares to the public and its shares can be listed and traded on the Cyprus Stock Exchange.
3. Company Limited by Guarantee
A company limited by guarantee (CLG) is structured in a manner similar to a CSL-Private. The fundamental difference is that the liability of the shareholder is limited to the amount that the shareholder promises to contribute to satisfy creditors when and if the CLG is wound up. A CLG is used primarily for charitable and not for profit purposes.
4. International Business Company (IBC) and Branch of a Foreign Legal Entity
As of January 1, 2003, Cyprus abolished the concept of an “off shore company” and replaced it with the term “International Business Company” or IBC. An IBC is not a new form of business organization but rather a company formed under the laws of Cyprus which does business in other countries but may also do business in Cyprus. The key issue for an IBC is how it is treated for tax purposes. If the management and control of the IBC are done outside of Cyprus, then the IBC is not a resident for tax purposes. There is no statutory definition of “management and control”. However, as long as board decisions are made outside of Cyprus and at least a majority of the board members reside outside of Cyprus, then management and control will likely be deemed to be outside of Cyprus. An IBC which is deemed a non-resident is exempt from the 10% company tax on income realized from operations outside Cyprus even though the company is formed under the laws of Cyprus. The income of a non-resident IBC realized from any operations in Cyprus is taxed at the 10% rate. Also, if the non-resident IBC has at least 1 shareholder who resides in Cyprus, then the IBC is subject to the defense tax.
A CLS-Private or CLS Public, which satisfies the management and control requirement, becomes a non-resident IBC by filing a bank reference and copy of the owners’ passport(s) with the Central Bank of Cyprus and a statement containing the following information:
A foreign legal entity can establish a branch in Cyprus. The foreign legal entity must file documentation that similar to the documentation required to establish a branch under Greek law. The foreign legal entity is not subjected to tax on its income from operations outside of Cyprus simply by establishing the branch. The foreign legal entity is subject to the 10% company tax on income derived from operations in Cyprus.
5. Formation of Companies
The existence of any form of company commences when a certificate of incorporation is issued by the Registrar of Companies. To obtain a certificate of incorporation, founders must file a Memorandum of Association and Articles of Association. The Memorandum of Association is the functional equivalent of articles of incorporation in the U.S. and must contain:
The Articles of Association govern the internal affairs of a company. They are the functional equivalent of by-laws and a shareholder agreement in the U.S. The Articles generally contain the following:
6. Capital and Shares
Unlike many civil law jurisdictions, there is no minimum paid in capital necessary to form a company. A company has authorized and issued shares. Authorized shares are the total number of shares that the company may issue. Issued shares are the shares that the company has actually issued. The number of authorized shares can be increased only by a vote of the shareholders. The number of authorized shares cannot be reduced unless such reduction is approved by the appropriate Court. The Court may require the company, as a condition of confirmation, to publish the reasons for reduction, or such other information in regard there as the Court considers desirable in order to give proper information to the public, and the causes leading to the reduction.
Shares may be issued in exchange for either for cash or for in kind consideration. Most subscribers are issued "ordinary shares" which are functionally the same as common shares in the U.S. Ordinary shares are entitled to share in profits and a share of the assets on liquidation. Preference shares are entitled to share in the profits and the assets on liquidation before any distribution is made to the ordinary shares.
Subject to the Articles (which in the case of a CLS-Private must restrict the right of transfer) a shareholder has an unrestricted right to transfer his shares to any person, whether the shares are fully paid up or not. Shares held by a registered holder are transferred by a written instrument of transfer. After the directors have passed on the transfer, legal title vests in the transferee when, on the books of the company, the shares are entered in the name of the transferee and a new share certificate is issued to the transferee. While a contract to transfer shares may be made orally, the company cannot enter the transfer on its books unless an instrument of transfer is produced. Unless so empowered by the Articles, the directors cannot refuse to enter a transfer unless the proposed transferee is a person who cannot be bound by contract,(e.g. an infant or a person of unsound mind), and the shares are not fully paid or the transfer instrument is not a "proper instrument of transfer,". The transferee succeeds to each right and liability of the transferor.
7. Meetings of Shareholders
Meetings of the shareholders (referred to as General Meetings) are those which must be held within the time limits set by law and those which must be convened for special a special purpose. The Articles generally provide for the calling, conduct and voting in General Meetings. If the Articles make no such provisions then:
Each company must hold in each fiscal year a General Meeting as its annual general meeting in addition to any other meetings in that year and to specify the meeting as such in the notices calling it.
8. Management
A company is managed by the directors. The directors are elected by the shareholders at the annual general meeting. A director may be removed from office by an ordinary resolution at a general meeting. The rights of minority shareholders are protected by the court in cases where those in control are using their position and the company property for their own benefit or where those in control are using their position to take property owned by other shareholders.
Each company must cause proper books of account to be kept with respect to:
At some date not later than 18 months after the incorporation of the company, and subsequently once at least in every calendar year, the directors must submit to the shareholders a profit and loss account or, in the case of a company not trading for profit, income and expenditure account, for the period, in the case of the first account, since the incorporation of the company, and, in any other case, since the preceding account. The directors must also submit to the shareholders for each calendar year a balance sheet as of the same date as the profit and loss account, or the income and expenditure account. Auditors are appointed at each annual general meeting and render services until the next annual general meeting. Each company must submit to the government an annual report containing information such as the address of registered office, names of directors and shareholders and capital structure.
9. Winding Up and Dissolution
A company may be wound up by a court or under the supervision of a court or voluntarily by a vote of the shareholders or by an act of the creditors. The company is then dissolved but until it is so dissolved its corporate status continues. The liquidator is the agent of the company for the purpose of winding-up. The liquidator is independent from the directors and officers. The powers and authority to act of the directors ceases as soon as the winding up process begins.
The concept of partnership is essentially the same as it is in the U.S under the Revised Uniform Partnership Act (RUPA) and the Revised Uniform Limited Partnership Act (RULPA). Partnerships are either general or limited. In a general partnership, two or more persons are engaged in a business for profit. Each partner is liable to the extent of his or her personal assets for all debts and obligations that the partnership incurred while he or she is a partner.
In a limited partnership, one or more persons is a general partner who is liable to the extent of his or her personal assets for all debts and obligations of the partnership while one or more persons is a limited partner who is liable only to the extent of his or her contribution to the partnership for the debts and obligations of the partnership. A company can be a general partner in either a general or limited partnership as long as such a position is authorized by its Articles.
Neither partnership is a distinct legal entity but it can sue or be sued in its own name. The concepts of a limited liability partnership (LLP) and a limited liability limited partnership (LLLP) are not recognized under Cyprus partnership law.
The International Business Trust (IBT) is a concept and form of entity that has existed in the common law and in the statutory law of many common law countries such as the Cayman Islands, Bermuda and Jamaica. In 1992, Cyprus enacted legislation that modernized the Cyprus law of trusts and enabled the creation of international business trusts(International Trust Law (ITL) Law 89(I)92.
1. Attributes
An IBT is a trust that is created so as to possess each of the following attributes:
2. Creating the IBT
The existence of the IBT commences when the trust agreement is made by and among the settlor, the beneficiary(ies) and the trustee(s). While there is no legal requirement that the trust agreement be in writing, the attorney should counsel the client(s) that a written trust instrument is essential as a practical matter and to protect the interests of each of the parties. The trust instrument is not filed with any government authority and is maintained among the records of the IBT. If the IBT is created in a will then the requirements applicable to creating a valid will must be satisfied.
The only filing that the IBT must make is an application to the Central Bank of Cyprus by the Cypriot trustee for authority to allow a Cypriot person or entity to act a trustee under terms set by the Central Bank of Cyprus. This application is required by the Exchange Control Act and not by the ITL. If the trustee is an IBC, then no such application need be made as long as the IBC has already obtained such authority.
An IBT that is created in a manner consistent with the ITL is presumed to be a validly created IBT. No law of Cyprus nor of any other country that governs inheritance or intestate succession shall in any way impair or otherwise affect the binding legal nature of any transfer of property to the IBT or the existence of the IBT. Unless a creditor can demonstrate that the IBT was set up to defraud creditors, neither the bankruptcy of the settlor nor the liquidation of the assets of the settlor renders the IBT void or otherwise adversely affects the existence of the IBT. A creditor must bring an action to set aside transfer to an IBT within 2 years after the date on which the transfer is made.
3. Types of IBTs
An IBT can have as its purpose a charitable purpose or any other purpose. The ITL does not in any way restrict the IBT in its purpose or mandate any particular purpose for an IBT. An IBT has a charitable purpose if its main purpose is any of the following:
4. Duration of the IBT
The IBT shall endure for so long as the trust instrument states but that period cannot exceed 100 years from the date on which the IBT is created. If the trust instrument does not contain a time limit, then the time period is 100 year from the date of creation. If the IBT has a charitable purpose or the beneficiary is a charitable institution, then the duration can be perpetual.
5. Trust Instrument
The ITL does not mandate that the trust instrument of an IBT contain any particular provisions. However, because an IBT is a trust and subject to the trust law, the trust instrument must contain certain provisions that demonstrate that the IBT possesses the traditional attributes of a trust. The trust instrument must demonstrate on its face the affirmative intent of the settlor to create a trust, the trust corpus must be reasonably specified or capable of identification and the beneficiaries must be identified or reasonable ascertainable.
6. Administration and Operation of the IBT
The ITL contains few mandates or restrictions governing the administration and operation of the IBT. The IBT can accumulate and distribute income as set forth in the trust instrument for the duration of the IBT. The trustee must invest the corpus of the trust as forth in the trust instrument subject only to exercising due diligence and reasonable prudence.
The trust instrument determines the powers and scope of authority of the trustee. The ITL does not mandate any such powers or scope of authority. A person or entity is sometimes appointed to oversee the trustee or act as a check on whatever the powers and authority are granted to the trustee. That person or entity is referred to as the “protector”. The ITL does not provide for or define the duties of a protector. Determining the powers and authority of the protector is a matter for the parties.
To the extent that a court is required to construe the trust agreement, the court will seek to determine the intent of the settlor and construe the trust agreement consistent with that intent. The court will in effect apply the cy pres doctrine as it understood in English common law.
7. Confidentiality Relating to IBTs
Subject to the trust instrument, no person including the trustee, any government official and any officer of the Central Bank of Cyprus shall disclose any information or document about:
If a court orders the disclosure of any of the foregoing information or document after due process in any civil or criminal proceeding, then the prohibition on disclosure shall not apply. The terms “information” and “document” are broadly defined to include data in electronic form.
8. Taxation of IBTs
The income and gains of the IBT are exempt from taxation by Cyprus including any tax in the nature of an inheritance tax. The trust instrument is subject to a stamp duty.
The Societas Europaea or European Company (SE) is a new legal entity which was enabled under the laws of the European Union (EU) on October 1, 2001. An SE may operate and conduct business activities in any EU Member State without having to establish subsidiaries or re-registering in each EU Member State in which it does business, (See EE 2001 L.294 p.1; Council Regulation (EC) No. 2157/2001).
An SE can be formed in any one of the following ways:
The SE will be required to satisfy certain worker involvement provisions. The SE will be taxed by each EU Member State in the same way that a multi-national company is currently taxed under the national legislation of each of the EU Member States. The minimum subscribed (but not paid in) capital is Euro 120,000. Greece and Cyprus have enacted implementing legislation which allows for the creation and operation of SEs.
Cyprus Commercial and Company Law