Key features of Cyprus Limited Liability Companies
Incorporation and capacity to contact
A company comes into existence as a legal entity as soon as it is incorporated by the Registrar of Companies. This is evidenced by the Registrar issuing a Certificate of Incorporation that is conclusive evidence that the company has satisfied all legal requirements in respect of incorporation and that the company is duly registered under the Companies Law.
A company cannot contract into or enter any other obligation under the law until it has been incorporated. It cannot be held liable on, or entitled under contracts purporting to be made on its behalf, prior to incorporation. It cannot ratify contacts that were made prior to its existence. In such circumstances, companies should enter into new contracts to give force to agreements that were made prior to incorporation.
Memorandum of association
The company’s objects and powers are defined in its memorandum of association. Any act beyond a company’s legitimate powers as defined in its memorandum is void. Consequently, the memorandum of association is normally drafted as widely as possible to enable the company to engage in any type of business.
Articles of association
The articles of association set out the administrative regulations and procedures for running the company. They stipulate and define how meetings of shareholders and directors are held, the powers bestowed on directors, the method of appointing and removing directors, determine the minimum number of persons that must be present for a quorum, set out the procedures for issuing new shares, transferring shares, borrowing powers and so on.
Although the articles of association can often be in standard form, they can also be drafted to take into account the specific needs and requirements of the shareholders.
Powers of shareholders and directors
The powers in a company are distributed between the board of directors and the shareholders as stipulated in the articles of association. Therefore, the powers of the directors can be as wide or narrow as the articles provide except that the exercise of certain powers are specifically reserved for the shareholders. For example, the shareholders always have the right to remove directors.
The memorandum and articles of association are filed with the Registrar of Companies and become public documents available for inspection by everybody.
As previously stated, an action outside the objects of the company is void and therefore unenforceable. The remedy commonly available to the other contracting party is to recover money or property paid or transferred under the void transaction to the extent that it is possible to trace it.
On the other hand, the case with regards to an action that is within the objects of the company but made by directors acting outside their powers as stated in the articles of association may be very different. The “indoor management rule” as it is often called, accepts that persons dealing with directors are entitled to assume that the directors have the authority which they claim to have. Under common law principles, the company is bound by the actions of a director where the director acted within the usual, apparent or ostensible scope of the “director’s authority”.
Directors and Secretary
A private company may have only one director and a secretary. A director may also be the secretary. From an administrative point of view, it is advisable for the secretary to reside in Cyprus and be conversant in Greek as all communications and fillings with the Registrar of Companies are required to be made in the Greek language.
All companies are required to hold an Annual General Meeting (AGM) in each calendar year. No more than 15 months must elapse between one AGM and the next. The first AGM must be held within 18 months of incorporation. Failure to comply makes the company and each director liable to a fine not exceeding €450.
The articles of association normally provide that the directors may call an Extraordinary General Meeting at any time. Notwithstanding the provisions of the articles, the law states that the holders of 10 percent of the paid up capital of the company have the right to require the directors to call an Extraordinary General Meeting.
The notice period for an AGM or the meeting for the passing of a special resolution is 21 days. The notice period is 14 days for every other case. These notice periods may be shortened if 95 percent of the members entitled to attend and vote agree to do so, except in the case of an AGM where all the shareholders must agree to the shorter notice period.
Cyprus law contemplates three types of resolutions: ordinary, special and extraordinary. The minimum notice period and majority required in each case, are summarised as follows:
Cypriot law details the nature of resolutions for each type of decision required.
Obligation to maintain accounting records and prepare audited financial statements
The directors are obliged to ensure that the company maintains records which enable the preparation of financial statements and present a true and fair view of the company’s financial position and performance in accordance with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS). Accounting records of companies should be updated within four months from the date of each transaction. Audited financial statements are required to be filled with the Registrar of Companies and Tax Authorities within 12 months from the financial year end.
The accounting records must be held either at the registered office or at another place in Cyprus and must always be available for inspection by the directors. Even if the bookkeeping function is maintained outside Cyprus, arrangements should be made for the accounting records to be sent to Cyprus at regular intervals.
Consolidated financial statements
Every company that has subsidiaries is obliged, in certain circumstances, to prepare consolidated financial statements in accordance with IFRS and IAS and present them to members at the general meeting. Additionally, the financial statements must disclose the following:
The financial statements must be accompanies by a report of the board of directors which includes:
Remuneration of auditors
Amounts paid to directors as compensation for loss of office
The total amount paid to directors in fees and emoluments
Directors’ holdings in shares and debentures
Loans granted to directors
Exemption from the consolidated statements
Details of any changes in the nature or volume of operations
Any changes in the share capital
Any significant change in the constitution of the board of directors or the duties assigned to its members
Directors’ proposals regarding the distribution of the retained profits
“Small groups” as defined in the law are exempted from the preparation of consolidated accounts, unless:
They are public companies
The preparation of consolidated accounts is governed by other specific legislation, and
They exceed any two of the following three criteria:
Total balance sheet assets of €17.500.500
Total turnover of €35.000.000
Total number of employees 250
Conversion of Private into Public Company, Listing and EU Passporting
Do you want to establish a company in Cyprus? Our Cyprus company formation
page explains it all.
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and Eurobank Cyprus online banking