Business Law and Company Law: Cap 113 in Practice
Business Law and Company Law tests the Cyprus Companies Law Cap 113 and general contract principles as they apply to a company officer. Questions usually present a transaction or resolution and ask whether it is valid - so you must know the statutory step, not just the outcome.
Formation and constitution
- A company is formed by filing the memorandum and articles with the Registrar of Companies. On registration it becomes a body corporate with separate legal personality and perpetual succession; members' liability is limited to amounts unpaid on their shares.
- At least one shareholder and one director are required, a company secretary must be appointed, and a registered office must be maintained in Cyprus.
- Authorised (nominal) capital is the maximum the articles permit; issued capital is what has actually been allotted. Share premium is credited to a share premium account.
Management, meetings and distributions
- Directors' duties: act in good faith in the interests of the company, exercise the care and skill of a reasonably diligent person, avoid and disclose conflicts of interest, and act within the powers in the articles.
- AGM: held within 18 months of incorporation and thereafter at intervals of not more than 15 months; the annual return is filed with the Registrar after the AGM. Registers of members, directors and secretary, charges and beneficial owners must be maintained.
- Distributions: dividends may be paid only out of distributable profits - accumulated realised profits less accumulated realised losses.
- Winding up: members' voluntary (with a declaration of solvency), creditors' voluntary, or compulsory by court order.
- Contract: offer, acceptance, consideration, intention to create legal relations, capacity and legality; an agent binds the principal through actual or apparent authority.
Worked example
A company has share capital EUR 100,000, share premium EUR 40,000, retained earnings EUR 30,000, a revaluation reserve EUR 80,000 and a current-year loss of EUR 10,000. Distributable profits are 30,000 - 10,000 = EUR 20,000. The revaluation reserve is unrealised and the capital accounts are not distributable, so a proposed dividend of EUR 50,000 is unlawful; the maximum lawful distribution is EUR 20,000, and directors who pay more may have to repay it.
Traps that cost marks
Confusing authorised with issued capital; treating a private company as automatically exempt from AGM requirements rather than following the statutory procedure; assuming a revaluation reserve can fund a dividend; and overlooking that a director's undisclosed interest in a contract can make it voidable.