Shareholders may hold both the legal and beneficial title to shares, or may hold only the legal title to the shares on behalf of a third person (the beneficial owner). Only the registered (legal) owner is recognised by the company by law and included in the company’s register of members and public records.
The share capital which a company proposes to issue must be divided into shares of a fixed amount. Shares must be issued with a nominal value and fractions of shares cannot be issued.
The share capital of a Cyprus company may be divided into different classes of shares, and different classes can benefit from different rights. Although the share capital with which the company is incorporated must be stated in the memorandum of association, the classes of shares which are issued thereafter and their respective rights need not be set out therein, and the power may be reserved in the articles of association to issue such classes of shares with such rights as the articles of association may expressly set out.
The company may increase its issued share capital by allotting more shares, but only up to the maximum amount allowed by its authorised share capital, unless the authorised share capital is increased in accordance with the terms of the company’s articles of association.
Nominal value and share premium
A company’s authorised share capital is divided into shares of a nominal value. While the market value of the shares of a company may change over time, their nominal value will always remain the same (unless the members approve a reorganisation of share capital for their consolidation, division, cancellation or otherwise).
Shares may also be issued at a premium. Shares issued at a premium are not subject to the 0.6 per cent capital duty applied on an increase of share capital. When shares are allotted and issued at a subscription price over and above their aggregate nominal value, the sum equal to the aggregate amount of the premium over the nominal value should be transferred to a ‘share premium’ account which is treated as part of the paid-up share capital.
Redeemable preference shares
A company limited by shares may, if so authorized by its articles of association, issue preference shares which are liable to be redeemed at the option of the company and/or at the option of the shareholder. The terms of redemption will also be set out in the articles of association. Redemption is only permitted if the statutory conditions for redemption are satisfied. It should be noted that redeemable preference shares must be issued as redeemable preference shares and cannot be converted from any other class of share.
NATURE OF BUSINESS AND ACTIVITIES OF THE COMPANY
The articles of association of the company set out the rules for running the company’s internal affairs. Although the articles of association are often in standard form, they may also be drafted to take into account the specific needs and requirements of the members in respect of the company’s internal regulations and procedures. A special resolution (75% majority) is required by law to amend the company’s articles of association.
The memorandum of association must include an objects clause which sets out the scope of the company’s powers and permitted operations. The memorandum of association typically includes wide objects and powers in order to avoid the possibility of the company proceeding with an action that is not within the objects of the company and thus void. In order to amend the memorandum of association, court approval is required.
CORPORATE VEHICLES AVAILABLE IN CYPRUS
The Cyprus Companies Law Cap. 113 offers a number of corporate vehicles.
Company limited by shares
A company limited by shares is an entity that can issue shares, its members are the holders of such shares, and the liability of the members for the debts of the company is limited. The company has a separate legal personality from its members, meaning that its members are not liable for the company’s debts and may not be sued by any creditor.
Company limited by guarantee not authorised to issue shares
A company limited by guarantee not authorised to issue shares is an entity in which shares cannot be issued and its members are referred to as guarantee members. Guarantee members are only required to contribute to the company’s assets if the company goes into liquidation. The company’s memorandum and articles of association can also provide for any additional liability to the company, which can be a useful mechanism for providing for annual payments or subscriptions by members.
Similar to a company limited by shares, members of a company limited by guarantee are not liable for the company’s debts. Rather than having a vote for each share held, however, each guarantee member is typically entitled to one vote.
Company limited by guarantee and authorised to issue shares
This hybrid corporate vehicle is a company limited by guarantee but with the flexibility of being able to issue shares. It must have at least one guarantee member, but may also have shareholders. A shareholder’s votes correspond to the number of shares held, while each guarantee member receives one vote.
The memorandum and articles of association state the amount which each guarantee member is liable to contribute to the company’s assets upon liquidation, the maximum number of shares the company is authorised to issue, and the classes of shares and the rights and privileges attaching to each class.