Cyprus company law in simple words

Company as a legal entity

A Cyprus company once established (has obtained a certificate of incorporation) is essentially a legal person. This means it can sue in its name and can be sued, it can own property or owe money all quite independently of the people who are involved in the running of the company ie the directors and shareholders.

The constitution of a company is its Memorandum of Association (hereafter “Memo”) and its “Articles of Association” (hereafter “AA”).

Memorandum of Association

The Memo gives details of the country of the registered office of the company, whether or not the liability of its members is limited and the amount of its nominal share capital. Importantly it sets out (in clause 3 of the Memo) the objects of the company i.e. the purpose for which the company is in business and the powers to achieve the purpose.

Articles of Association

The Cyprus Companies Law Cap.113 provides a precedent for a set of AA for a company (Table A). The AA of a company may adopt the Table A without amendment. Alternatively, Table A could be totally rejected in favour of a different set of AA specifically drafted for a particular company. The AA are the regulations for the management of the company and contain provisions essentially relating to the following:

• The company’s share capital (such as increase, reduction, etc)
• The transferability of shares
• The conduct of meetings and voting;
• The composition and election of the board of directors
• Administration and powers of the board of directors
• Profits
• Notices

Status of Member

The members of a company (commercially a member is known as the shareholder) own the shares in that company and thereby own the company in proportion to their shareholdings.

The liability of a member in a company (assuming a limited liability company) is ‘limited’ to the agreed price of his shares. Other than in exceptional circumstances members have no personal liability for the company’s debts however great those debts may be. For example, if a member (shareholder) has bought 100 share of Euro1 each, in a company and that company becomes insolvent, owing millions of Euro to its creditors, the worst it can happen to the member is that she loses the Euro100 originally invested.

The degree of involvement by members in their company will vary enormously depending e.g. on the size of shareholding and the wishes of the members. A member may also be a director of the company although there is no link between the two roles within a company. The management of the company is vested to the directors. However, major decisions which in principle have an effect on members’ rights are usually required by the Companies Law Cap.113 to be approved by the members in a general meeting. Thus the Company Law states that certain acts can only be decided by the members, for example, removing a director from office (s.178), changing the AA (s.12), increase of capital (s.60) reduce the capital (s.64) etc.

Voting

100% shareholding has the power to decide anything in relation to the company (the only restriction is the legality of the decision). 75% can pass a special resolution, 50% plus1 share can pass ordinary resolution and 25 plus 1 share naturally can block a special resolution.

Reasons for calling general meetings include:

• Change the Memo and/or AA,
• Increase share capital,
• Buy-back shares,
• Declare dividends.

The board of directors (as ordinarily is the case) and one or more members together holding at least 10% of the share capital (often when the board does not do so) may call a general meeting.

Directors

The directors are the people (corporate directors are allowed) who manage the company. They take business decisions and make contracts on the company’s behalf. The company exists as a legal person but needs agents to act on its behalf. The directors are the company’s agents and they have a considerable amount of power within the company structure. As a result, various safeguards are usually built into the company structure, both by the Company Law and by the AA in order to protect the members. These parameters subject the directors to a large number of restrictions and controls. Generally, the directors, like the members, are protected from personal liability by the fact of the company being ‘limited’ but there are a number of exceptions to this.

Powers of Directors

Generally directors are given most powers of management required to run the company and they exercise these powers by passing resolutions at board meetings. Their powers will be given to them by the articles. The usual provision is that they can do anything not required to be done by the members in general meetings either by the Company Law or by the AA themselves. In the absence of special provisions in the AA, the members cannot overrule the board or retrospectively alter a decision of the board; all that members can do if they dislike the way in which directors are running the company is to alter the composition of the board or change the AA by special resolution to take certain powers from the board. However, (from case law) if directors become unable to exercise their powers, eg if the board is deadlocked, then powers may revert to the members.

The AA contain detailed provisions about the directors composition, their authority, powers and duties. Most of these can be enhanced, reduced or altered by special provisions in the AA.

A company must by law hold an annual general meeting every 18 months. The annual returns and all special resolutions must be filed with the Cyprus Registrar of Companies (governmental body). Any changes in its capital and its constitution must also be filed therewith. These are administrative matters which primarily are dealt with by the company secretary (upon the order of the board).

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