Private Company Limited by Shares
The relevant legislation is Cyprus Companies Law, Cap. 113, which is virtually a copy of the English 1948 Companies Act. A private company is one which by its articles:Restricts the right to transfer its shares Limits the number of its members to 50 Prohibits any public subscription to shares or debentures
The Companies (Amendment) Law of 2000 (Law 2(I)/2000) introduced single-member companies. The Companies (Amendment) (No. 3) Law of 2000 (151(I)/2000) introduced new provisions as to the validity of transactions of companies and as to the information which must be included in the official documents of companies. The Companies (Amendment) Law of 2001, Law 76(I) of 2001 provided for a new system for the certification of companies’ auditors and for the recognition of Bodies of Auditors and the grant of approval to auditors with foreign qualifications and also the recognition of accountants’ companies by the Council of Ministers.
When 100% foreign-owned, a private company used to be referred to as an ‘offshore company’, although recently the expression Cyprus International Business Company has come into favour. However, as from 1st January, 2003, an offshore company (IBC) no longer has a separate taxation status, and is taxed according to the same principles as a regular company. IBCs are now allowed to trade inside Cyprus. However, a pre-existing IBC which makes an irrevocable commitment not to trade inside Cyprus until 2006 is able to claim the existing low tax rate for the three years 2003, 2004 and 2005.
In order to form a foreign-owned company, a bank reference and copy of the owner’s passport is required for the registration. The bank reference must be issued by a bank included on the Central Bank of Cyprus’s list of qualifying banks.
The following information will be required for the formation of a standard Cyprus offshore company: Name of the company with two alternatives;
Objects of the company (description of principal activities of a Cypriot off-shore company);
Capital: a minimum of CYP 1,000 for a company with no offices in Cyprus, or CYP 10,000 for a company with offices in Cyprus. Payment of the capital can be extended in time.
Full personal details of shareholders will be necessary.
Full personal details of directors (minimum two) will be necessary.
Registration of a standard Cyprus offshore company takes three weeks typically.
In Cyprus, a company’s formation documents and its annual return must be filed in Greek; the same applies to accounts when these need to be filed.
Amendments made in 2003 to the Companies Law as part of the EU accession process included the following changes: Every company must prepare a full set of financial statements in accordance with International Financial Reporting Standards, and every parent company that has one or more subsidiaries, other than a company which is itself a wholly owned subsidiary, should present consolidated financial statements. Under article 120, every company must complete an annual return within a period of 42 days from the date of its Annual General Meeting and must file immediately with the Registrar of Companies a copy of the annual return, signed by a director and the company secretary. Under article 121, the annual return filed with the Registrar of Companies must be accompanied by the full set of financial statements.
Exempt Private Company
A private company limited by shares is exempt if:No body corporate other than another exempt company holds any of its shares or debentures The number of debenture holders is not more than 50 no body corporate is a director of the company.
The main advantages of an exempt private company are:It need not file accounts with its Annual Return It is not subject to the statutory restrictions on loans to directors
Public Company Limited by Shares
Any company registered under the Act whose Articles do not contain the restrictions applicable to private companies is a public company. A public company may obtain a listing on the Cyprus Stock Exchange.
Company Limited by Guarantee
As in England, companies limited by guarantee are normally used only for charitable or non-profit-making purposes. Apart from their share structure, they are similar to other types of private company and also fall under the Cyprus Companies Law.
Branch of Overseas Company
Any overseas company may operate in Cyprus as a branch. Within one month of establishment of such a branch, the following documents must be filed (in Greek) with the Registrar:A certified copy of the Memorandum and Articles of Association A list of the directors and secretary The names and addresses of persons residing in Cyprus authorized to accept all notices on behalf of the Company.
Companies with branches in Cyprus must also file their accounts annually, together with certified Greek translations.
Types of Trusts
There are various types of trusts that can be set up in Cyprus. The choice depends on the circumstances of the settlor and his objectives. These may include:
It is possible for a settlor in Cyprus to establish a Discretionary Trust based on Cap 193, which states that the powers of trustees can be expanded by the settlor in the trust deed.
A Discretionary Trust grants the trustees discretion to pay the income or capital of a trust fund to any or all of a particular class of persons defined in the trust deed. The trustee may be given also discretion in deciding when to pay any money to any of the members of the class. Thus, none of the beneficiaries has any right to be paid any money out of the trust fund, since the trustee may exercise his discretion and postpone any such payment or even decide not to pay a particular beneficiary at all.
The Discretionary Trust is the most commonly used type of trust in Cyprus due to the many advantages it provides. These include:
• The beneficiaries cannot be taxed on the trust fund, because they have no legal right in the trust fund until the trustees exercise their discretion in their favour.
• Similarly, the beneficiaries cannot be subject to local exchange control regulations regarding compulsory repatriation of assets until the trustees exercise their discretion.
• Since the beneficiary only has contingent interest, the trust assets are not available to his creditors, should he go bankrupt.
• It is a flexible instrument, allowing trustees to vary the various interests under the trust, as and when circumstances change, without the need to have recourse to the procedures of variation of trusts (i.e. getting the agreement of all the beneficiaries or asking the court to vary the terms of the trust).
It should be pointed out that in the case of Discretionary Trusts, it is customary that the settlor also prepares a “letter of wishes” in which he expresses his wishes to the trustees on any matters concerning the trust.
Another type of trust is a Fixed Trust, which does not give the trustees any discretion when distributing the assets to the beneficiaries. An example of this type of trust is one which requires the trustees to distribute the income of the trust property to a particular individual, during that individual’s lifetime and thereafter distribute the capital to a named beneficiary or beneficiaries in specified shares.
Fixed and Discretionary Trust
It is possible to have a combination of a Fixed and Discretionary Trust. The trustees may have discretion as to the distribution of income for a period of time, but are required to distribute the capital ultimately in fixed proportions.
Conversely, they may be required to distribute the income to a specified person or persons in fixed proportions but may have discretion as to how to distribute the capital amongst a class of beneficiaries.
Under a Trading Trust the trustee is usually a limited liability company which has powers to carry on business and the trust has trading functions and employees to manage its business. Third parties are not aware of the existence of the trust as all documentation used is in the name of the Trustee Company.
The Cyprus International Trusts Law of 1992 provides a legal definition of a Purpose Trust.