After approval of the company’s name, a Memorandum and Articles of Association must be submitted to the Registrar of Companies, with details of the share capital, directors, secretary and registered office. A certificate of incorporation is usually issued within a month, unless expedited.
Share capital
There is no minimum share capital for a private company, which can start from as little as one Euro or other currency denomination. For a public company the minimum is €25.630 payable prior to incorporations. The share capital is divided into shares which depicts the ownership percentage of its shareholder in the company.
Capital duty
On incorporation of a Cyprus registered company, capital duty of €103 plus 0.6% of the authorised capital is payable to the Registrar of Companies. Any subsequent increase in authorised share capital is liable to capital duty at 0.6%. No capital duty is payable on share premium and capital duty can be minimised by issuing a reduced nominal value of shares at a premium.
Directors’ liability
In the vast majority of Cyprus Companies, however, they follow the example set by Article 80 of the First Schedule of Table A of the Companies Act (Cap. 113), which grants the power to manage and conduct the business of the Company in the hands of the members of Board. Specifically, according to the above article:
“The business of the Company shall be managed by the Directors, who ….may exercise all such powers of the Company as are not, by the Law or by these Regulations, required to be exercised by the Company in general meeting, subject, nevertheless to any of these Regulations, to the provisions of the Law”.
So one can easily understand that as the powers of the board increase, so dotheir responsibilities …
Before, however, we proceed to analyse these responsibilities, we must first define who is considered as a Director of the Company.
First, we have to mention that the law does not offer a comprehensive definition of the Member of the Board of Directors, but more than just section 2 of the Companies Act to report that the term “director” includes any person occupying the position of director by whatever name called;
Consequently, in the above broad definition all the categories of directors are included, namely: de jure, de facto and shadow directors.
Furthermore, Article 2 of the Companies Law, Cap.113 provides that the term “officer”, in relation to a body corporate, includes a director, manager or secretary;
(A) The Secretary
Every company must have a secretary. The role of the Secretary was established by Lord Denning in the case of Panorama Developments (Guilford) Ltd v Fidelis Furnishing Fabrics Ltd (1971) as follows:
“But times have changed. A company secretary is a much more important person nowadays than he was… He is an officer of the company with extensive duties and responsibilities. This appears not only in the modern Companies Acts, but also by the role which he plays in the day-to-day business of companies. He is no longer a mere clerk. He regularly… enters into contracts on [the company’s] behalf which come within the day-to-day running of the company’s business. So much so that he may be regarded as held out as having authority to do such things on behalf of the company. He is certainly entitled to sign contracts connected with the administrative side of a company’s affairs, such as employing staff, and ordering cars, and so forth. All such matters now come within the ostensible authority of a company’s secretary…”
The typical duties of the Secretary include, inter alia, the following:
Maintenance of records and books of the company.
Filing the annual financial statements with the Registrar of Companies.
Preparation of agendas and taking minutes of meetings and assemblies.
Informing the Registrar of Companies for any major changes in the Company’s structure, e.g. at the structure of the board.
Safe custody of company documents and files.
In addition, the belowadditional administrative tasks may be assigned to the Secretary:
Purchase of insurance for the Company and its employees.
Pension plan.
VAT registration.
Managing the company’s facilities.
Managing the office.
Advise the directors and confirm that they comply with the Companies Law Cap.113 and the Company’s Articles of Association.
In public listed companies the secretary is responsible to be in compliance with the requirements of the Stock Exchange and the Code of Corporate Governance.
(B) The Chief Executive Officer (CEO)
According to Article 107 of Part 1 of Table A of the First Schedule to the Companies Act the directors may appoint one of them to the post of Managing Director/CEO. The directors may entrust to and grant to the Managing Director any of the powers they possess.
(C) Employees
Regarding the company’s employees it seems that Cyprus as well as English case law adopt a more restrictiveinterpretation. In theEnglish case Registrar of Restrictive Trade Agreements Act The W Smith & Sons Ltd (1969) two branch managers were not considered officials of the Company and Lord Denning held that the official within the meaning of the law must be a person who manages the affairs of the whole company. Unlike in the case Re Vic Groves & Co Ltd (1964) a department head (divisional manager) was held to be an Officer of the Company.
(D) Professionals
Even various professionals such as auditors, administrators, receivers and liquidators may be regarded as officers of the company, depending on the nature and extent of tasks and actions.
A director’s duties are owed to the company. Such duties include:
A) The duty to act in good faith
A breach of the duty to act in good faith in the best interest of the company (fiduciary duty) and of the duty of due diligence and care renders a director personally liable towards the company, which can claim compensation or take other measures. Note that the above obligations are due towards the company and not to individual shareholders. Indeed, in the recent case of Queens Moat Houses v. Bairstow and others [2000] 1B.C.L.C. 549, the directors were found to have breached the duty of loyalty to the Company, when they proceed to the payment of interim dividends to the Shareholders without the Company having sufficient distributable reserves. The Court ordered the directors to pay themselves the amount of unlawfully paid dividends, an amount that surpassed 40 million.
B) Additionally, common law duties include fiduciary duties (to exercise powers for the benefit of the company, retain freedom of action and avoid conflicts of interest) and a duty of skill and care, not to act negligently in managing the company’s affairs.
There are also statutory duties, some imposing criminal penalties, and duties owed to creditors.The violation of the provisions of law by the Company may result in criminal, civil or administrative liability or all of the above.
Other common legal actions against the Directors include:
Mismanagement of the business affairs or assets of the company
Own interests and conflicts of interest
Misleading conduct in the sale of the company’s assets
Misleading statements in a statement in lieu of prospectus or prospectus
Because he engaged in actions / transactions outside his authority
Violation of legislation (e.g labor laws)
Violation of the fiduciary duties
Reporting requirements
Company directors are responsible for maintaining appropriate books and records to present a true and fair view of the company’s affairs, to explain its transactions and to allow the preparation of financial statements. The directors must present a full set of financial statements to the annual general meeting of the company; if a company has subsidiaries, consolidated financial statements are required.
Notwithstanding this “small companies” exemption under the Companies Law, the Income Tax Law requires all companies to submit an annual tax return based on financial statements audited by authorised auditors. This effectively means that all companies are required to prepare audited financial statements.
An exemption from the obligation to prepare consolidated financial statements is available for “small sized groups” of companies, of which the companies that are being consolidated:
are not public companies;
are not required to prepare consolidated financial statements under any other legislation; and
together fulfil at least two of the following criteria at the date of closure of the balance sheet of the holding company:
total assets (without deducting liabilities) no greater than € 14.6 million;
net turnover no greater than € 29.2 million;
average number of employees no greater than 250.
Companies are also required to notify the Registrar of Companies within specified time limits of any charges over their assets, changes in their Memorandum and Articles, registered office, directors, secretary, members and share capital.
Annual levy on companies
The annual levy of €350 is imposed on all companies registered in Cyprus will be payable to the Registrar of Companies. For groups of companies there is a ceiling of €20.000.
The levy is payable by 30 June of each calendar year.
Penalties will be imposed in the event of late payment. If the levy is paid no later than two months after the due date a penalty of 10% will be charged. If the levy is paid between two and five months after the due date, a penalty of 30% will be charged. Companies which have not paid after five months from the due date may be struck off the register. They can be restored to the register only by paying an increased levy of €500 per year if they are restored within two years or €750 per year if they are restored to the register after more than two years.
After approval of the company’s name, a Memorandum and Articles of Association must be submitted to the Registrar of Companies, with details of the share capital, directors, secretary and registered office. A certificate of incorporation is usually issued within a month, unless expedited.
Share capital
There is no minimum share capital for a private company, which can start from as little as one Euro or other currency denomination. For a public company the minimum is €25.630 payable prior to incorporations. The share capital is divided into shares which depicts the ownership percentage of its shareholder in the company.
Capital duty
On incorporation of a Cyprus registered company, capital duty of €103 plus 0.6% of the authorised capital is payable to the Registrar of Companies. Any subsequent increase in authorised share capital is liable to capital duty at 0.6%. No capital duty is payable on share premium and capital duty can be minimised by issuing a reduced nominal value of shares at a premium.
Directors’ liability
In the vast majority of Cyprus Companies, however, they follow the example set by Article 80 of the First Schedule of Table A of the Companies Act (Cap. 113), which grants the power to manage and conduct the business of the Company in the hands of the members of Board. Specifically, according to the above article:
“The business of the Company shall be managed by the Directors, who ….may exercise all such powers of the Company as are not, by the Law or by these Regulations, required to be exercised by the Company in general meeting, subject, nevertheless to any of these Regulations, to the provisions of the Law”.
So one can easily understand that as the powers of the board increase, so dotheir responsibilities …
Before, however, we proceed to analyse these responsibilities, we must first define who is considered as a Director of the Company.
First, we have to mention that the law does not offer a comprehensive definition of the Member of the Board of Directors, but more than just section 2 of the Companies Act to report that the term “director” includes any person occupying the position of director by whatever name called;
Consequently, in the above broad definition all the categories of directors are included, namely: de jure, de facto and shadow directors.
Furthermore, Article 2 of the Companies Law, Cap.113 provides that the term “officer”, in relation to a body corporate, includes a director, manager or secretary;
(A) The Secretary
Every company must have a secretary. The role of the Secretary was established by Lord Denning in the case of Panorama Developments (Guilford) Ltd v Fidelis Furnishing Fabrics Ltd (1971) as follows:
“But times have changed. A company secretary is a much more important person nowadays than he was… He is an officer of the company with extensive duties and responsibilities. This appears not only in the modern Companies Acts, but also by the role which he plays in the day-to-day business of companies. He is no longer a mere clerk. He regularly… enters into contracts on [the company’s] behalf which come within the day-to-day running of the company’s business. So much so that he may be regarded as held out as having authority to do such things on behalf of the company. He is certainly entitled to sign contracts connected with the administrative side of a company’s affairs, such as employing staff, and ordering cars, and so forth. All such matters now come within the ostensible authority of a company’s secretary…”
The typical duties of the Secretary include, inter alia, the following:
In addition, the belowadditional administrative tasks may be assigned to the Secretary:
(B) The Chief Executive Officer (CEO)
According to Article 107 of Part 1 of Table A of the First Schedule to the Companies Act the directors may appoint one of them to the post of Managing Director/CEO. The directors may entrust to and grant to the Managing Director any of the powers they possess.
(C) Employees
Regarding the company’s employees it seems that Cyprus as well as English case law adopt a more restrictiveinterpretation. In theEnglish case Registrar of Restrictive Trade Agreements Act The W Smith & Sons Ltd (1969) two branch managers were not considered officials of the Company and Lord Denning held that the official within the meaning of the law must be a person who manages the affairs of the whole company. Unlike in the case Re Vic Groves & Co Ltd (1964) a department head (divisional manager) was held to be an Officer of the Company.
(D) Professionals
Even various professionals such as auditors, administrators, receivers and liquidators may be regarded as officers of the company, depending on the nature and extent of tasks and actions.
A director’s duties are owed to the company. Such duties include:
A breach of the duty to act in good faith in the best interest of the company (fiduciary duty) and of the duty of due diligence and care renders a director personally liable towards the company, which can claim compensation or take other measures. Note that the above obligations are due towards the company and not to individual shareholders. Indeed, in the recent case of Queens Moat Houses v. Bairstow and others [2000] 1B.C.L.C. 549, the directors were found to have breached the duty of loyalty to the Company, when they proceed to the payment of interim dividends to the Shareholders without the Company having sufficient distributable reserves. The Court ordered the directors to pay themselves the amount of unlawfully paid dividends, an amount that surpassed 40 million.
There are also statutory duties, some imposing criminal penalties, and duties owed to creditors.The violation of the provisions of law by the Company may result in criminal, civil or administrative liability or all of the above.
Other common legal actions against the Directors include:
Reporting requirements
Company directors are responsible for maintaining appropriate books and records to present a true and fair view of the company’s affairs, to explain its transactions and to allow the preparation of financial statements. The directors must present a full set of financial statements to the annual general meeting of the company; if a company has subsidiaries, consolidated financial statements are required.
Notwithstanding this “small companies” exemption under the Companies Law, the Income Tax Law requires all companies to submit an annual tax return based on financial statements audited by authorised auditors. This effectively means that all companies are required to prepare audited financial statements.
An exemption from the obligation to prepare consolidated financial statements is available for “small sized groups” of companies, of which the companies that are being consolidated:
Companies are also required to notify the Registrar of Companies within specified time limits of any charges over their assets, changes in their Memorandum and Articles, registered office, directors, secretary, members and share capital.
Annual levy on companies
The annual levy of €350 is imposed on all companies registered in Cyprus will be payable to the Registrar of Companies. For groups of companies there is a ceiling of €20.000.
The levy is payable by 30 June of each calendar year.
Penalties will be imposed in the event of late payment. If the levy is paid no later than two months after the due date a penalty of 10% will be charged. If the levy is paid between two and five months after the due date, a penalty of 30% will be charged. Companies which have not paid after five months from the due date may be struck off the register. They can be restored to the register only by paying an increased levy of €500 per year if they are restored within two years or €750 per year if they are restored to the register after more than two years.
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