A Cyprus Private Company Limited by shares is a class of private companies incorporated in accordance with the Cyprus Companies Law, Chapter 113 of the laws of the Republic of Cyprus. It is the most frequently used vehicle in Cyprus its numbers, statistics of the Registrar of Companies, being over 200.000 and on an annual basis around 14.000 new companies are incorporated every year.

Why is the “Private Company Limited by Shares” so popular ?

Separate Legal Personality

Prior to the UK’s Companies Act of 1907, a private company was not recognized as a form of corporate organization. Luckily for us Section 3 of the Companies Law, Chapter 113 defines the manner in which a legal person may be formed in Cyprus.

Once the Cyprus Company is formed, and in accordance with Section 3, the liability of the members may be limited to the amount unpaid on the shares held by each member or to the amount each member guarantees to pay in case the Cyprus Company is wound up.

From the principal of separate legal personality comes one of the most famous corporate law cases available, and that the case of Salomon v. Salomon & Co Ltd [1896] UKHL 1. In this case the House of Lords firmly upheld the doctrine of corporate personality.

Facts of the Case

Mr Salomon made leather boots or shoes in a large establishment. His sons wanted to become business partners, so he turned the business into a limited company. The company purchased Salomon’s business on an excessive price for its value. His wife and five elder children became shareholders and the two elder sons became directors. Mr Salomon took 20,001 of the company’s 20,007 shares which was payment from Salomon incorporated for his old business (each share was worth £1). Transfer of the business took place on 1 June 1892. The company also gave Mr Salomon £10,000 in debentures. On the security of his debentures, Mr Salomon received an advance of £5,000 from Edmund Broderip.

Soon after Mr Salomon incorporated his business there was a decline in boot sales. Salomon’s business failed, defaulting on its interest payments on the debentures (half held by Broderip). Broderip sued to enforce his security. The company was put into liquidation. Broderip was repaid his £5,000. This left £1,055 company assets remaining, of which Salomon claimed under his retained debentures. This would leave nothing for the unsecured creditors. When the company failed, the company’s liquidator contended that the floating charge should not be honoured, and Salomon should be made responsible for the company’s debts.

Salomon sued.

Legal Issue

Whether, irrispective of the seperate legal identity of a Company, a shareholder/controller could be held liable for a Comapny’s dept

Decision

The Court of Appeal held that Salomon abused the provisions of the Law and that the Comapny was an agent of Salomon. This was overruled by the House of Lords and unanimously held that, a validly incorporated company is a seperate legal personality with it’s rights and liabiltiies

By being a separate legal personality a Cyprus Private Company can be the right tool to ensure that your new business venture will not affect your existing wealth since your liability is limited to the value of shares held or amounts guaranteed

In accordance with Section 4 of the Companies Law, Chapter 113, it is a legal requirement for the name of the Company to have the word Limited or LTD as the last word of its name as a notice to the world that they are dealing with a limited Company

Limited Liability

Although separate legal personality is enjoyed between the Company and its shareholders, the shareholders are not risk-free. The memorandum of association of every company formed in Cyprus limits the liability of the shareholders to the value of the unpaid shares he holds and in the case of shares which have been issued to the value of the investment made.

Typically the shareholder would be the last to take any funds out of a company, in winding up, and that is because they are unsecured creditors of the Company. However, as seen above such shareholder’s cannot be held liable to pay for the assets of the company out of there own pocket. This, in turn, allows business promoters to take risks and invest or being entrepreneurial in a controlled environment.

In the case of Edwards v. Halliwell [1950] 2 ALL ER 1064 the Court of Appeal held that a shareholder of a Company could not be required to contribute beyond the limits initially undertaken. This case was adopted in the high profile Cypriot case of LITONOR FINANCIAL LIMITED ν. RGI RESIDENTIAL HOLDINGS LIMITED κ.α., Αρ. Αγωγής: 3073/14, 29/12/2016 which considered shareholders’ dispute.

Share Capital

 

 

A Cyprus Private Company limited by shares has the power to issue shares. This means that the board of directors is able to give to someone an asset in exchange for the company receiving certain benefits, cash, shares in other companies or any other quantifiable assets.

The uniqueness of this mechanism cannot be matched by any other legal arrangement and the same is only available to those types of companies that are able to issue shares.

With the issue of shares, the registered shareholder receives rights. Such rights may relate to the right to receive a dividend, vote in shareholder meetings, the redemption of shares, return on capital in case such capital is available and many more.

Variation of Capital

Once the company has been formed the shareholders and directors have a plethora of options and manners in which they can alter the share capital. In accordance with Section 60 of the Companies Law, Chapter 113, they can:

  • Increase the share capital of a Cyprus Company so as to create sufficient capital for a new issue
  • Consolidate the share capital of a Cyprus Company, so that two or more shares become one
  • Subdivide the share capital into shares of smaller value

When joint stock companies were established the great object was that the shares  should be capable of being easily 

transferred

RE THE BAHIA AND SAN FRANCISCO RAILWAY CO LTD V TRITTIN AND OTHERS: CA 1868,

Transactions Involving Shares 

With shares being an asset the possible transactional use that they have cannot be undermined. 

Transfer of Shares

Once shares are held they may be transferred to another person. Section 29 restricts this right to a certain extent and we will look at this further down. 

Allotment of Shares

The board of directors may allot and issue (give) shares to any party in consideration of other assets or even a promise to pay (un-paid shares) typically thought Cypriot companies do not use this function.  

Other Cyprus Companies Posts

If you are looking for other Cyprus Companies Law content please visit this link 

If you have a specific matter in mind please let me know by pressing on the contact us button.

Very useful and well writen article

Andreas Karoullas

Financial Analyst, O.M. Offshore Monitoring Ltd

Harris Sharpe

Harris Sharpe

Author - Photographer

For many years he has worked and devoted his skills and efforts towards building a successful career as a leading executive. From humble beginnings, his aim has always been to yield results; with a keen focus to attention to detail and client satisfaction. His experience has always been varied and not specific, at times he preferred it. With that in mind, he has dealt with CySEC on licensing and ongoing regulation, international private equity and credit fund managers, NASDAQ and NYSE listed companies occasional millionaires as well as self-made millionaires. His passion though is difficult transaction work organizing and deploying people for a common goal. Harris enjoys reading and studying the Cyprus law and sharing that information on this website.

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Publications on Cyprus Business Law

Cyprus Annual Return HE32 for Companies

Cyprus private companies limited by shares are required to prepare and submit to the registrar of companies an annual return HE32. The Cyprus annual return HE32 must be accompanied by (1) Audited Financial Statements (the “FS”) and (2) Declaration of the Director and Secretary (the “Declaration”) confirming that the FS submitted are those presented to the shareholder at an Annual General Meeting (“AGM”)

Cyprus Company Formation

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.

Private Company Limited by Shares

A Cyprus Private Company Limited by shares is a class of private companies incorporated in accordance with the Cyprus Companies Law, Chapter 113 of the laws of the Republic of Cyprus. It is the most frequently used vehicle in Cyprus its numbers, statistics of the Registrar of Companies, being over 200.000 and on an annual basis around 14.000 new companies are incorporated every year.

Cyprus Registrar Forms legality issues and effect

Within the Companies Law, Chapter 113 of the Laws of the Republic of Cyprus the term “Prescribed Form” (καθορισµένο τύπο) which means the Cyprus Registrar Forms is mentioned several times. Although the Companies law requires information to be submitted in the Prescribed Form this does not create automatic legality of the said action (e.g. change of director) is not implied

Transfer of shares when is it effective?

In the case of Morsa Trading the district court held that a person becomes a registered member of a Cyprus company when that person’s name is registered in the register of members. Accordingly, the transfer of shares in a Cypriot Company requires, amongst other things, the registration in the register of members.

Company Migration to Cyprus

Migrating a company to Cyprus is not without its challenges, nevertheless if the foreign countries laws allow a company may redomicile and migrate to Cyprus. After which time it will be registered under the companies law.

TheCyprusLawyer - Business Law Publications

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