Private Company Limited by Shares – Share Capital
Cyprus private companies enjoy almost no restrictions on the structure of their share capital. There is legally no minimum threshold to be satisfied other than being denominated to 1/100 of any currency (e.g. €0,01 and US$ 0,01) and accordingly no maximum sum, furthermore thin capitalization rules do not apply in Cyprus.
In general terms a Cyprus private company’s share capital is divided into three parts:
- the authorised share capital (also referred to as the registered capital (i.e. the capital with which a company is registered));
- the issued share capital (for the purposes of the initial subscribers to the memorandum it is customary to also call this the subscribed capital); and
- the unissued or not yet issued share capital;
Further to these three general categories mentioned above various classes of shares may be issued or designated in the Cyprus Company’s share capital, accordingly.
Authorised/Registered Share Capital
A private company’s authorised share capital upon incorporation will be, usually, specified in clause 5 of the private company’s memorandum (clause 6 being the subscription clause and clause 4 the liability clause). Below I place specimen wording appropriated for the purposes of incorporating a private company limited by shares in Cyprus:
” 5. The (registered) share capital of the Company is Euro Five Thousand (€5.000) divided into Five Thousand (5.000) shares of nominal value Euro One (€1,00) each with the power for the Company to increase or reduce it’s (registered) share capital. “
Table B of Schedule 1 to the Cyprus Companies Law, Chapter 113, also provides specimen wording which may be used (translated from the Greek Language to the English Language):
” 4. The share capital of the company is two hundred thousand divided into two thousand shares of two hundred each. ”
The difference between the two is that reference to “registered” is made in the first specimen and that the first specimen clause expressly provides the power to increase or reduce the company’s share capital.
At this point I would like to point out that the Cyprus Companies Law, Chapter 113, allows Cyprus Company’s to increase their share capital by way of ordinary resolution and to reduce the same, subject to the Cyprus company’s memorandum allowing it (the Cyprus company) to carry on such a reduction and passing a Special Resolution of the shareholders.
Following on from the above it may be argued that the first specimen wording is more complete and grants the Cyprus company greater powers to utilise the almost unrestricted potential and flexibility of it’s share capital, whereas the second specimen wording is incomplete and restrictive.
To comprehend the purpose of the authorised/registered clause in the memorandum several factors need to be taken into account, amongst these:
- The issued share capital;
- Pre-emption rights;
- Power to issue shares;
- Potential future investors;
- Directors appointment;
- Distribution of dividends;
- Return on Capital upon placing the company in winding-up;
- Contribution to the liabilities of the company in winding-up;
- and many others
However, for the purposed of this post the background will be limited. Accordingly, in general terms the authorised/registered share capital of a company is not capital at all, rather it the right to issue shares of any class and of any denomination or value of up to that authorised/registered nominal value that the Company is incorporated with or as increased.
In other words the authorised/registered share capital of a Cyprus company works as a limit, a limit to which the company’s directors may not exceed, by the allotment and issue of shares of greater nominal value than that that the company was registered with or as the case may be.
The specification of a maximum limit of the issued share capital may be said to provide certainty to the current shareholders and to potential future investors, additionally it may be said that a shareholders rights and obligations are restricted to the number of shares the shareholders hold and the share rights those shares were issued with.
An example may be illustrated as follows:
Cyprus Company is incorporated with a share capital of €5.000. The subscriber to the memorandum undertakes to subscribe to 4.000 shares of nominal value €1,00 each. Meaning he (subscriber) will be liable to contribute (if these are fully paid up) €4.000 to the issued share capital of the Company. Deducting 4.000 from 5.000, 1.000 remains. That 1.000 is the unissued share capital of the company which may be at the disposal of the Company’s board of directors.
Issued Share Capital
The issued share capital of a Cyprus company is the real capital, in business terms it is referred to as equity in Greek it’s ekdomeno (εκδομένο). It is the substance of which the private company was formed and it is the key to obtaining independent personality from the company and it’s business while at the same time allowing shareholders, who are ordinarily enough not involved in the day to day management of the Company, to appropriate the benefits and control the company’s affairs.
In general terms, the issued share capital defines the power of a shareholder in a company and entitles that shareholder to the rights and obligation specified in the Companies Law, Chapter 113, the company’s articles of association and on the terms with which that share was issued.
Table A of Schedule 1 of the Companies Law, Chapter 113, provides at regulation 2 that:
” 2. Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, any share in the company may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as the company may from time to time by ordinary resolution determine. “
Considering the wording I note that any shares proposed to be alloted and issued carrying any preferred, deferred or other special rights or restrictions requires the sanction of the general meeting, by way of ordinary resolution. However the allotment and issue of ordinary shares, i.e. ranking pari passu in all respects with all the already issued ordinary shares and conferring a right to vote, participate at the general meetings, receive dividend payments, any returns of capital upon liquidation or distribution of assets or as the case may be does not require the sanction of the general meeting; rather the power to allot and issue ordinary shares is vested in the hands and in the absolute discretion of the company’s board of directors.
In this connection the following conclusions may reached:
- Classes of shares may be issued;
- Shares may be issued with preferred, deferred or other special rights or restrictions in respects of dividend, voting or any other right that an ordinary shareholder would be entitled to.
On another point, shares may be partly paid or paid-up in full, Section 55 of the Companies Law, Chapter 113, allows a company to issue shares at a premium and accordingly Section 56 allows a company to issue shares at a discount from their nominal value. Additionally shares may be issued with a right of redemption either exercisable by the shareholder or the company.
To conclude, the possible names and share rights that shares may carry or otherwise confer are unlimited and any combination’s of the above, and a few others, may be undertaken to suit the particular requirements and business structure of a Cyprus company. The absence of thin capitalisation rules in Cyprus means that Company’s having a humble share capital may be used as financing vehicles in facility agreements of several millions.
Unissued Share Capital
Unissued Share Capital may be said to be the authorised/registered share capital of a company that has not been allotted and issued to any person.
Resent practise at the Department of the Registrar of Companies has created a new division of capital, referred to as the undesignated and designated share capital, meaning that part of the authorised/registered share capital that has not been allotted and issued but has not been designated as belonging to a certain class of shares and that part of the authorised/registered share capital that remains unissued but has been designated into a certain “category or class”, e.g. ordinary, class A, redeemable preferred … etc.
Taking into account Regulation 2 of Table A it may be understood that the authorised share capital of Cyprus company is that part of the capital that will be allotted and issued to potential investors in the Cyprus company, i.e. for the raising of capital other than bank lending.
The practical applications of the share capital are limitless and restricted only by the imagination, practical knowledge, the Companies Law, Chapter 113 and the sought endeavor.
Thank you for your time.