Introductory Business Guide: Cyprus’ Legal Overview
In 2019, Interlegal published its first joint book called Legal and Tax Issues Around the World - Starting and Growing a Business. It is the result of collective work with the accountants' firms network EuraAudit. This article aims to introduce the legal environment of Cyprus for entrepreneurs who are interested in forming and financing their business in this country. Note that it is not equivalent to a complete professional analysis. Through this introductory guide, the network intends to help entrepreneurs to craft the questions they need to ask themselves in order to start, operate, and see their business thrive on the global stage. Therefore, Interlegal encourages entrepreneurs to obtain legal advice with Andreas Ioannous Kitsios' firm on the issues arising from starting and running a business in Cyprus.
By having a favourable tax system for corporations in Europe, Cyprus is one of the leading business centres and attracts foreign investors to establish their companies on the island. The company registration procedure is the same for all business entities with a simple and straightforward structure. Registration of companies and filings may also take place electronically over the internet.
Registered Companies and Partnerships
A Cyprus company will be Cyprus tax resident if it is managed and controlled in Cyprus.
Companies incorporated in Cyprus must adhere to the rules and regulations for taxation in Cyprus and must pay corporate tax (see below).
According to Cyprus Companies Law, legal entities may be registered as limited liability companies, public limited companies or as a company limited by guarantee. In Cyprus, partnerships are also allowed in general or limited form.
Any foreign company may establish branches in Cyprus, by presenting relevant documents. The main requirement for the branches is to submit annual financial reports, in Greek or accompanied by a Greek translation.
From a Cyprus Tax perspective, a Cyprus Limited Liability Partnership is not considered as a legal entity with separate legal personality. As such, the partners themselves are subject to taxation instead of the partnership.
All types of companies and partnerships must be registered at the Company Registrar of Cyprus.
Classification of Registered Companies
In Cyprus there are the following types of company:
Company limited by shares
Private Limited Company. This is the most commonly used type of company. There are no minimum or maximum share capital requirements. A private limited liability company must have between one and 50 shareholders. The right to transfer shares is restricted and shares or debentures cannot be subscribed to the public.
Public Limited Company. A public limited liability company must have at least seven members and at least €25.629 share capital. There is no maximum number of shareholders. Shares and debentures may be offered to the public.
Companies that wish to list their shares on the Cyprus Stock Exchange are required to set up a public limited corporation. In addition to the legislation applicable to limited liability companies, they have to conform to the provisions of the Cyprus Stock Exchange and Cyprus Securities and Exchange Commission regulations.
Companies limited by guarantee – normally incorporated for non-profit purposes.
There are no companies with unlimited liability.
Memorandum and articles of association
A Cyprus company has a memorandum of association and articles of association.
The memorandum of association must include at least the following information:
- Name of the company.
- Objects of the company: a company may adopt a general short-form objects clause in the memorandum of association which provides that the object of the company is the conduct of any business as a general commercial company.
- That the liability of its members is limited.
- The share capital of the company.
The articles of association also form part of the company’s constitution. A company may choose to either adopt Table A of the Cyprus Companies Law or to tailor Table A in accordance to their specific needs.
The form of the memorandum of association and articles of association is set out in the Cyprus Companies Laws.
The liability of the shareholders is limited to the amount, if any, unpaid on the shares respectively held by them.
Public Offer of Shares
A private limited company is prohibited from inviting the public to subscribe for any shares in the company.
A public limited company may offer its shares to the public. The invitation must be accompanied by a prospectus.
Public companies enjoy tighter regulation. A public limited company may also list their shares on the Cyprus Stock Exchange.
General meetings are regulated by both the Cyprus Companies Laws and the articles of association of the company (to the extent permitted by the law). Every company must call an annual general meeting each year. Public companies shall also hold a statutory meeting shortly after the date that the company is entitled to commence business.
Notice periods for the meetings vary depending on the type of company and the type of meeting. The articles of association may provide for longer notice periods for meetings but notice periods cannot be shorter than the minimum periods provided for by law. In relation to notice periods for annual general meetings, shorter notice may only be given if the shareholders unanimously agree. Other than an annual general meeting, shorter notice may be provided when 95% of the shareholders agree.
General meetings may take place by telephone conference call or by any other means of communication, except as otherwise provided by the company’s articles of association. The place of the general meeting is considered to be the place where the minutes have actually been taken.
Major decisions of the company, such as change of the objects of the company, change of the articles of association, change of name and reduction of capital are only taken by the shareholders of the company.
The directors may only act within the powers conferred to them by the articles of association. Directors usually have the power to manage the company on a day to day basis.
A private limited company must have at least one director and one secretary. If there is only one member, that member may act as the director and secretary.
A public limited company must have at least two directors and one secretary.
Directors do not need to be citizens of the Republic of Cyprus and may be of any nationality. A company may also be appointed as director.
Financing a company
A company may be financed in the following ways:
- Equity Finance – issue shares/capital contribution from shareholders, flotation (public companies);
- Debt Finance – borrowings; and
Commencement of Business
The application for company name approval and registration of a company may be filed online or by hand at the Registrar of Companies. The approval of the company name takes about two business days on a fast track basis. Registration of the company takes about three-four business days after the submission of all the required documents, again on a fast track.
A company needs to register with the tax authorities and obtain a tax identification code within 60 days from the date of incorporation.
Mergers and Acquisitions
A private limited company may be sold through a share sale, whereby the shares in the company are transferred by the selling shareholder to the purchaser. The purchaser takes all of the assets and liabilities of the company. Instead of a share sale, the purchaser may acquire the business of the company (asset sale). In an asset sale, the buyer cherry-picks the assets they wish to purchase and the company selling its business does not change hands.
A public limited company may be purchased directly from its shareholders. For listed companies the takeover procedure is regulated by tighter laws and regulations and supervised by the Cyprus Securities and Exchange Commission.
When a company becomes insolvent, there are various rescue mechanisms: a compromise arrangement, examinership and liquidation.
The company or the creditors may apply before the court to convene a meeting to propose a compromise arrangement. A compromise arrangement between the company and its creditors will be binding on all of the creditors and the company, if three-fourths in value of the creditors approve it at the creditors’ meeting and provided that the compromise agreement is sanctioned by the Court. No protection from creditors is provided by the Court.
Examinership aims to rescue viable companies. In order to assist in the survival of the company, the company is placed under the protection of the court for four months from the date of the presentation of the petition or on the withdrawal or refusal of the petition, whichever happens first. The company shall then be deemed to be under the protection of the Court. During that protective period no winding up proceedings may be commenced against the company and no receiver may be appointed.
Liquidation is detailed immediately below.
Winding Up of Companies
A company may be wound up in three ways:
- Compulsory liquidation by the Court;
- Voluntary liquidation; or
- Liquidation subject to the supervision of the Court.
With regard to compulsory liquidation by the Court, a petition may be presented either by the company or by any creditor including any contingent or prospective creditor and/or contributory creditor. The company may be wound up by the Court, if, among other things:
- The company is unable to pay its debts;
- The Court is of the opinion that it is just and equitable for the company to be wound up; or
- The company decides so by a special resolution.
When a winding up order has been made, no action or proceeding shall be proceeded or commenced against the company without prior leave of the Court.
Only licensed Insolvency Practitioners may be appointed to act as liquidators.
For more details, please contact Andreas Ioannou Kitsios:
Christoforos Ioannou Kitsios, Partner - firstname.lastname@example.org