A company is formed in Cyprus by way of law. The principal legal instrument giving such right is the Companies Law, Chapter 113 of the laws of the Republic of Cyprus, however the memorandum and articles play an equal important role in a Cyprus Company Formation. These two ‘constitutional’ documents are often called upon to deal with business matters of the Company and in other times to define the rights of the various parties.
Cyprus Company Formation and the Companies Law, Chapter 113
The Companies Law was one of the main laws adopted by newly formed Republic of Cyprus in 1960. The equivalent UK legislation was the Companies Act of 1948. Since 1960 the Companies Law was amended 63 times. The Companies Law covers among other things the following:
- Company Formation and Related Matters
- Share capital
- Management and Administration
Formation and the Memorandum of Association
Historically the memorandum of association set-up 5 key subjects which the company adhered to unless amended by court, following a shareholder approval process.
The Name Clause
A Cyprus Company’s name clause effectively includes the name of the Company. Founders and Promoters of companies cannot just select a name and place it on the memorandum since such a name may be used by another existing company. Furthermore the law provides wide discretion to the Registrar to reject a name request if it is found to be against the common interest. Every Cyprus company must have as it’s last word to its name the use of ‘Ltd’ or ‘Limited’ or ‘Λτδ’ or ‘Λιμιτεδ’.
If you would like to find out how to change the name of a Cyprus company please read this publication.
The Registered Office Clause
The registered office clause is a legacy provision. As per the various English law publications a Company could choose to have its registered office in England, North Ireland or Scotland and as such defining its location was relevant then.
In local terms the company’s registered office is always in Cyprus and even if the Company moves it’s registered office abroad the memorandum is never updated to reflect this.
The Objects and Powers Clause
The objects and power clause of the memorandum set’s the objectives for which the Cyprus Company was formed as well as the powers which it would enjoy. The principal aim of the memorandum has always been to limit the possible objects which the Company could perform, i.e not allow the directors to pursue any object they deemed fit and not to be used abusively.
In 2015 the requirement to specify lengthy objects and powers was amended. The amendment introduced the notion of ‘general commercial company’ which means that the company is allowed to perform any work, business or profession and enter into any agreement, to undertake any obligation, to proceed with any transaction which it might undertake.
This is not true for Cyprus companies formed to pursue a specific licensed operation such as obtaining an Investment Firm license or providing the services of a bank. In the past certain European and National Grants (Ecotourism Grant) required that the memorandum expressly authorize Companies to provide Ecotourism Services.
The Members Liability clause
The Capital Clause
The capital clause specifies the value of the authorized share capital along with the division of such authorized share capital and the value of each share. Typical example:
The Company’s authorized share capital is Euro 1000 divided into 1000 shares of nominal value Euro 1,00 each.
The capital of a Cyprus company may be in any currency (GBP, USD, EURO, other) and the smallest value possible is 0,01 of that currency.
The Company’s authorized share capital is Euro 1000 divided into 100.000 shares of nominal value Euro 0,01 each.
This is particularly flexible when the company is significantly exposed to other currencies since the alternation of the capital will ensure that foreign exchange gains and losses are not recorded on the capital of the Company and provide a more uniform approach.
‘Capital in USD, investments in USD, Reporting Currency USD’Single functional currency of the entire operations of the company
‘Capital in Euro, investment in Rub, Reporting Currency USD’Multiple currencies and various FX gains or losses
For the avoidance of any doubt the capital clause is a limited, specified by the founders of the Company. It should not be confused with the issued share capital which is actual shares which the subscribers to the memorandum subscribe upon the Cyprus Company Formation.
Formation and the Articles of Association
The Articles of Association form the backbone of the internal governance rules of a Cypriot company. They set out the rules and regulations governing the various operations and focus on matters such as these mentioned below. With so many particulars to factor in a careful consideration of the articles is required.
Cyprus company may choose to adopt, exclude or partially adopt Table A of the Companies Law. Table A are template articles of association provided by the Companies Law. They have been drafted in 1948 and remain unchanged until today. Moderns business law practice should exclude these and opt for more tailored made articles of association so much to address modern needs as well as to align stakeholders’ interest
The beauty of a company is that it has shares available for disposal. carefully drafted provisions within the articles of association allow for endless possibilities. A practical issues which are captured within the articles are those relating to the issuance and redemption of shares, preemtion rights, tag along and drag along rights and reserved matters.
The articles aim to regulate general meetings of the shareholders. These provisions relate to matters of the notice required to hold a general meeting, specific notice period and delivery methods, the process to be followed at the time of the general meeting as well as how shareholders are to vote during the general meeting.
The articles also regulate the board of directors composision, appointment and removal, disqualification as well as any minimum shareholding requirement. Practical examples include the minimum and maximum number of directors, the appointment of an alternate director, the process to call a board meeting, the procedure during the board meeting and the voting process during such a meeting. Important to note is also the requirement to have a quorum present. Withthe meaning of quorum specified by the articles.
The articles provide the means by which a company may distribute final or interim dividends and also if specified therein may allow the company to distribute dividends in kind rather than in cash.
Submitting the Company Formation to the Registrar of Companies
With the various matters affecting the incorporation completed it is time to proceed and submit the documents to the registrar of Companies, this process can take two forms. The first which i call traditional method requires the physical delivery of documents whereas the second the e-filling of the documents via the online system of the Registrar.
Traditional Method for Cyprus company formation
The traditional method requires that the physical documents are put together and originals sent to the registrar of companies. This means that if the subscribers are locals you would need to get a signature from every promoter, subscriber, director and secretary (‘Relevant Party’) of the Company . If a Relevant Party though is outside of Cyprus this means that this method entails significant delays in document and execution collection.
The lawyer engaged with the incorporation of the Company will have prepared the memorandum and articles of associations with the relevant provisions and clauses. Furthermore the lawyer is required to prepare form HE1, this is an attestation by the lawyers declaring that the particulars of the Cyprus Companies Law have been complied with.
The subscriber to the memorandum is the person(s) signing the memorandum of association. They take up shares and generally direct the particulars of the Company.
Director, Secretary and Registered Office
The lawyer entrusted with the incorporation of the Company will prepare Forms HE2 and HE4. These forms communicate to the Registrar who will be appointed as the secretary, the director and the location of the registered office.
Request for Certificates
The Cyprus company formation process is completed once the certificate of incorporation is issued. This is a mandatory requirement of the law and as such the registrar issues this every time without any extra cost.
Typically though certificates play an important role for a Cyprus Company since they communicate to interested parties the particulars of a Company. This is particularly useful for bank account opening. At an extra costs the following certificates are requested:
- Certificate of Incorporation in the English Language
- Certificate of Registered Office
- Certificate of Director and Secretary
- Certificate of Shareholder
- Certificate of Share Capital
- Copy of the Memorandum and Articles of Association
Company Formation Pack
The company formation pack should included the following:
- 2 Executed Memorandum and Articles of Association
- 1 Form HE1
- 1 Form HE2
- 1 Form HE4
- 1 Request for Certificates Form
- Cover letter
Delivery of the Company formation pack is done between 07:00 am and 12:00 am Monday to Friday at the Registrar of Companies offices in Nicosia.
E-filling Method for Cyprus company formation
The last 3 years the Registrar of Companies has made it possible to submit documents via the e-filling platform. This means that documents and process have been digitized and that the incorporation process can be performed digitally. This shortens the time span for preparing documents as well as time delays of processing the documents at the registrar since everything is scanned by the lawyer entrusted with the formation process.
Result of Company Formation
Once the Company is Formed and incorporated under the Companies Law the Registrar will issue a certificate of incorporation along with the other certificates requested.
With the certificate of incorporation issued then the company may proceed to carry on its business activities.