Company Law

by Andria Papageorgiou

Q&A: due diligence for tech M&A in Cyprus

As the technology sector thrives in Cyprus, mergers and acquisitions (M&A) involving tech companies have become increasingly common. Conducting thorough due diligence is essential to ensure that intellectual property (IP) and technology assets are accurately evaluated, and potential legal or regulatory risks are addressed before completing a transaction. This process requires specialized knowledge in areas such as IP ownership, licensing, data protection, and cybersecurity.

With over a decade of experience in the fintech industry and extensive expertise in GDPR compliance, intellectual property, and regulatory frameworks, our Law Firm is well-equipped to guide clients through the complexities of tech M&A in Cyprus. We understand the unique challenges that tech companies face during the necessary due diligence phase, and our deep sector knowledge ensures that every aspect—from IP rights to data protection—is carefully reviewed to safeguard our client’s interests.

In this article, we present the key areas of tech M&A due diligence in Cyprus, outlining the distinct approaches for share acquisitions versus asset purchases, and highlighting the legal and regulatory considerations specific to the local market. With our expertise, both buyers and sellers can confidently handle these transactions, ensuring a seamless and legally sound process.

1. What are the typical areas of due diligence undertaken in tech M&A in Cyprus?

In Cyprus, due diligence for tech M&A focuses on reviewing the target’s technology and intellectual property (IP) assets. This includes confirming the ownership, licensing, and protection of technology and IP rights, assessing IT infrastructure (e.g., cloud-based or on-premises systems), reviewing data protection compliance (especially with GDPR), and evaluating cybersecurity measures. Due diligence also assesses contractual obligations, key third-party relationships, the handling of open-source software, and any regulatory filings triggered by the transaction.

2. How does due diligence differ between share acquisitions and asset purchases in Cyprus?

In a share acquisition, the buyer acquires the entire company, including all assets and liabilities, which typically means a more extensive due diligence process. This includes verifying IP ownership and identifying potential third-party disputes over rights. In asset purchases, the focus is on ensuring the transferability of the specific IP and technology assets, as well as contracts, with potential restrictions on transfer. Asset purchases may also require separate approvals for data transfers, particularly where customer data is involved.

3. What public searches are typically conducted during tech M&A due diligence in Cyprus?

Public searches typically involve checking Cypriot IP registers for patents, trademarks, and design rights to verify ownership and status. Searches may also include international IP databases, company registers, and records for liens or security interests on intellectual property. Additionally, searches may be made through the Department of Registrar of Companies for annual reports, charges, and encumbrances on the target’s assets.

4. Can liens or security interests be placed on intellectual property or technology assets in Cyprus?

Yes, intellectual property and technology assets can be pledged as security in Cyprus. Due diligence will involve checking the Department of Registrar of Companies for any registered liens, pledges, or security interests on IP assets. Ensuring that proper documentation for the release of such security is in place is crucial as part of closing the transaction.

5. What is the due diligence process for employee-created intellectual property in Cyprus?

In Cyprus, IP rights created by employees during the course of their employment typically belong to the employer, unless agreed otherwise. Due diligence should review employment contracts to ensure that they include clauses transferring IP rights to the company. Similarly, contractor agreements should be reviewed to confirm that the company holds ownership of any IP or technology developed by external third parties.

6. What due diligence is conducted regarding the target’s use of open-source software?

The buyer will assess whether the target uses open-source software in its proprietary technology and confirm compliance with relevant licenses. Open-source licenses, especially those with “copyleft” provisions, may require that modifications or derivative works be made publicly available. Due diligence will also check if the target has policies to manage the use of open-source software, and, if necessary, the buyer may request code scans to identify potential risks.

7. How is software licensing typically reviewed during tech M&A due diligence in Cyprus?

Software due diligence involves reviewing both licensing in (software the target uses) and licensing out (software the target licenses to others). Key issues include confirming that the software licenses cover the necessary users (especially in group structures) and assessing whether there are any restrictions on transferring licenses to the buyer. Agreements with third-party software providers should be reviewed to ensure continued support and maintenance post-acquisition.

8. What are the data protection considerations in tech M&A in Cyprus?

Compliance with data protection laws, including GDPR, is a significant focus in tech M&A. Due diligence will involve reviewing the target’s data processing activities, internal policies, and any potential data breaches. For transactions involving customer data, especially in asset purchases, it is important to assess whether customer consent is required for transferring personal data, as this may complicate the transaction.

9. Are there specific regulatory concerns for tech companies in Cyprus?

Yes, certain sectors may have additional regulatory requirements in Cyprus. For example, tech companies dealing with sensitive data or operating in sectors like telecommunications or financial services must comply with sector-specific regulations. Due diligence will assess whether the target company has made the necessary regulatory filings or received the appropriate approvals, and whether any filings are triggered by the transaction.

10. How are intellectual property rights (IPR) transferred in tech M&A in Cyprus?

The transfer of intellectual property rights is generally straightforward in Cyprus but may require specific agreements, especially in asset purchases. Transfer of licenses, particularly software licenses, often requires the consent of the licensor. Exclusive and non-exclusive licenses may be treated differently, with exclusive licenses requiring more stringent review. It is essential to ensure that all necessary consents and assignments are obtained before closing the transaction.

In case you have any questions, please do not hesitate to contact us for further professional assistance.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.

by Andria Papageorgiou

Announcement by the Registrar of Companies and Intellectual Property for Cases Where the Beneficial Owner Has Deceased

The Department of the Registrar of Companies and Intellectual Property (DRCIP), following an opinion from the Legal Service of the Republic dated 13/06/2024 on the above matter, provides the following guidance/instructions, as seen in the relevant announcement here.

CASES WHERE THE BENEFICIAL OWNER HAS DECEASED

Answers to specific questions:

1. Who is registered as the beneficial owner (BO) when there is no will and, consequently, no executor of the estate?
2. What happens if there is a will? Can the executor of the estate be registered as the senior management official until the process is completed?

   In cases where an administrator has been appointed but the administration of the estate has not been completed, the following may be registered for a period until the process is completed:

   i. The estate administrator as the senior management official of the company if they exercise control over the company through other means; or
   ii. The legal heir as the beneficial owner or as the senior management official.

When a person dies without a will, the Court authorizes one or more persons as administrators of the deceased’s estate, granting them letters of administration following a petition by these persons, which is called an application for administration without a will attached. Similarly, when a person dies leaving a will, this will is probated (see Article 14 of the Administration of Estates Law (CAP. 189)), following an application by the persons named as executors of the will or by other persons entitled to the grant of probate or the receipt of letters of administration with the will annexed.

With the granting of letters of administration or the issuance of probate, as referred to above, the administrator or executor becomes the deceased’s personal representative and is considered a trustee of the deceased’s movable and immovable property. As such, they constitute the natural person who “has ultimate control” according to the definition of “beneficial owner” in Article 2 of Law 188(I)/2007 (it should be noted that the situation where the ultimate ownership or control of the legal person is held through a trust at a percentage exceeding 25% of the shares or voting rights or ownership rights of the said legal person is different).

Therefore, when there is no will, and an administrator has been appointed, or when there is a will, and an executor of the deceased’s estate has been appointed, they constitute the beneficial owners as the natural persons who have the ultimate control of the company as long as they retain this capacity concerning the specific assets of the company (i.e., the shares).

The above is subject to the provisions of Article 27 of CAP. 189, which provides for the direct inheritance to the heirs, in special cases (even though no letters of administration of the estate have been granted), in which the beneficial owners become the heirs of the deceased who inherit, as the natural persons who have the ultimate ownership status (it should be noted that in practice, the procedure of Article 27 of CAP. 189 is applied only in cases where the value of the estate does not exceed 6000 pounds).

Who is registered as BO when there is no appointed estate administrator and no heirs?

According to Article 47 of CAP. 195, “if there is no person alive who is related to the deceased up to the sixth degree of kinship at the time of death, the deceased is deemed to have died intestate,” and “subject to the share of any surviving spouse, the intestate part of the estate and the undistributed part of the estate become the property of the Republic.”

Nevertheless, in response to the query, the non-filing of an application and non-issuance of letters of administration, and therefore the non-appointment of a personal representative (and non-transfer of the estate to the Republic) imply that “no natural person with ultimate ownership or control of the legal entity” can be identified. Therefore, the beneficial owner in this case is “the natural person holding a position of senior management official,” according to the definition of “beneficial owner” in Article 2 of Law 188(I)/2007, unless Article 27 of CAP. 189 applies (see point 3 above).

Who is registered as BO when no estate administrator has been appointed, there are no heirs, but the deceased has minor children and a spouse?

Without the issuance of letters of administration and the appointment of a personal representative when the deceased left behind heirs (i.e., a spouse and children), the beneficial owner is “the natural person holding a position of senior management official,” according to the definition of “beneficial owner” in Article 2 of Law 188(I)/2007, since no natural person can be identified as a beneficial owner under paragraph (a)(i) of the definition, unless Article 27 of CAP. 189 applies.

Who is registered as BO in an entity when the sole officer (director, secretary) and beneficial owner has died, and there is no will or estate administrator?

In the event of the death of the sole shareholder and officer of a company, and if no letters of administration have been granted, and there is no “natural person holding a position of senior management official” as this can be interpreted under the provisions of Law 188(I)/2007, there is, in fact, no natural person within the meaning of “beneficial owner” in Article 2 of Law 188(I)/2007, and it follows that the company is not conducting business or operating.

Note:

In every case, any relevant provision in the company’s Memorandum and Articles of Association or the application of other legislation depending on the particular facts should be considered.

In case you have any questions, please do not hesitate to contact us for further professional assistance.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.

by Andria Papageorgiou

UK Non-Dom Regime Facing Uncertainty: Exploring the Cyprus Alternative

The future of the widely utilized UK non-domicile (“non-dom”) regime is currently uncertain. There is a strong possibility that this regime may soon be abolished or undergo significant modifications, particularly concerning the duration for which it will remain applicable. Much hinges on the outcome of the upcoming UK elections, with the Labour and Conservative parties offering little clarity in their manifestos, thereby increasing the unpredictability surrounding this issue.

As a result, current UK non-doms and other international individuals looking to relocate their tax residency are actively seeking alternatives that can satisfy their personal, business, and financial needs efficiently. This is where Cyprus presents a compelling alternative.

The Cyprus Non-Dom Regime: A Prime Alternative

Cyprus has emerged as a preferred destination for individuals from both EU and non-EU countries, whether for long-term relocation or short-term solutions. This is largely due to its attractive non-dom tax regime, which automatically applies to foreign persons who become tax residents in Cyprus. This regime offers significant benefits for up to 17 years.

There has been a notable increase in the number of foreigners opting to become Cyprus non-dom tax residents, leveraging the island’s favorable conditions to manage their international and local business affairs. Cyprus offers a balanced mix of tax and non-tax advantages, making it an appealing option.

Key Benefits of Cyprus Non-Dom Status

Non-dom residents in Cyprus enjoy specific exemptions from Cyprus taxation on dividends and interest, regardless of the source country or whether the funds are remitted to Cyprus. Additionally, there is a complete tax exemption on gains from the sale of shares and other qualifying titles, as well as from capital gains unrelated to immovable property situated in Cyprus.

These exemptions are particularly advantageous for high-net-worth individuals, whose income often primarily comes from dividends, interest, and capital gains.

Foreign individuals can become Cyprus tax residents through the standard 183-day rule or the recently introduced 60-day rule, subject to certain conditions.

Comprehensive Benefits Beyond Taxation

Apart from tax benefits, Cyprus offers a wide array of attractive elements for both individuals and companies. The island excels in providing a high quality of life, featuring a convenient geographical location, a pleasant Mediterranean climate, numerous blue flag beaches, a low crime rate, modern infrastructure, and high-end properties. The availability of international schools, advanced medical care facilities, and a vibrant cosmopolitan lifestyle further enhance Cyprus’s appeal as an ideal place to work, live, and raise a family.

How our Law Firm Can Assist

Our Law Firm offers a comprehensive range of services to facilitate your transition to Cyprus, including:

• All aspects of Corporate procedures
• Assistance with Immigration matters
• Registration with Cyprus tax authorities
• Establishment and administration of Cyprus companies
• Provision of professional director services
• Company domiciliation
• Assistance with Permanent Residency Permits and Work Permits
• Opening of bank accounts
• Accounting and bookkeeping services
• Handling property and real estate matters
• Provision of Family Office services

Cyprus stands as a viable and attractive alternative for those considering relocating from the UK non-dom regime, offering robust benefits and a high quality of life. Contact us today to learn how we can support your transition to Cyprus.

For any professional assisstance, please do not hesitate to contact us at info@apapageorgiou.com.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information. 

by Andria Papageorgiou

Understanding Non-Governmental Organizations (NGOs)

Non-governmental organizations (NGOs), also known as civil society organizations, are groups or entities of volunteers that operate independently from any government. These organizations are established to contribute at community, national, or international levels, aiming to fulfill humanitarian purposes or environmental protection goals.

The Legal Framework for Establishing and Maintaining NGOs in Cyprus

In Cyprus, there are three primary options for establishing an NGO: Clubs, Foundations, and non-profit companies limited by guarantee. Clubs and Foundations are governed by the Clubs and Foundations Law (Law 104(I)/2017, as amended), with the latest amendment in 2020. Non-profit companies are regulated under the Cyprus Companies Law, Cap. 113.

If any of these entities are approved by the Council of Ministers of the Republic of Cyprus as a ‘charitable organization,’ their income is exempt from taxation. Donations to such approved organizations may also be tax-deductible under the Law on Income Tax (Law 118(I)/2002), though the tax treatment of donations depends on the laws of the donor’s jurisdiction.

Characteristics and Obligations of Different NGO Structures

Clubs:

• Require at least 20 members to form and must serve public purposes without commercial aims.
• Governed by their constitutional documents and the law, clubs must register with the Ministry of Interior’s Registrar of Clubs.
• Clubs must submit audited accounts annually and report changes in membership and board composition.

Foundations:

• Managed by a minimum of three persons, Foundations must register their incorporation act, detailing their purpose and assets.
• Must hold property valued at no less than €1,000, dedicated to non-profit purposes such as education, health, or environmental protection.
• Foundations are overseen by Commissioners or a Board of Directors and must file annual audited accounts.

Non-Profit Companies Limited by Guarantee:

• Established under the Companies Law, Cap. 113, these companies limit members’ liability to their guaranteed amount.
• Must state non-profit purposes in their memorandum of association and prohibit profit distribution to members.
• Managed by a Board of Directors, these companies must file annual audited accounts with the Registrar of Companies.

Conclusion

Establishing an NGO in Cyprus requires careful consideration of the legal form and compliance with specific regulatory requirements. Each type of entity—Club, Foundation, or non-profit company—offers distinct advantages and obligations. Proper registration and adherence to governance and reporting standards are crucial for maintaining the status and benefits of an NGO in Cyprus.

 Should you have any further questions, please do not hesitate to contact us at info@apapageorgiou.com.

Disclaimer: Please note that the information provided above is intended as an overview of the four types of non-profit organizations and should not be regarded as legal advice. To ensure proper understanding and compliance with the specific requirements for registering a non-profit company, society, foundation, or club, it is strongly recommended to seek professional legal advice. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information. 

by Andria Papageorgiou

Abolishment of Annual Levy for Cyprus Companies

On February 21, 2024, the government issued an official statement regarding the abolition of the €350 annual company levy, effective immediately for the fiscal year 2024.

This strategic decision is aligned with broader economic initiatives aimed at fortifying businesses within our evolving global landscape and elevating Cyprus’s allure as a preferred destination for business activities.

Further information regarding the logistical aspects of this policy change will be communicated as it becomes accessible.

In case you need our legal support, please do not hesitate to contact us for further professional assistance.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.

by Andria Papageorgiou

Important update on the Cyprus UBO Register

The Department of Registrar of Companies and Intellectual Property has announced that the final electronic system solution of the Register of Beneficial Owners of Companies and other legal entities (UBO Register) is now implemented. The final system solution replaces the existing system, which was implemented with effect as of 12 March 2021 as an interim measure for the collection of information on beneficial owners. Access to the final system solution begins on 14/11/2023. You may access the official announcement of the Registrar (which is in Greek) by clicking here.

PERIOD A: 14/11/2023 – 31/12/2023

All companies established or registered under the Companies Law, Cap. 113, all European Public Limited Liability Companies (SE) and all Cooperatives (hereinafter Organizations) or their officers/partners are invited to enter the final system and proceed with the “Initial Registration”. That is, to update/ re-register their UBOs, even if they have already done so in the interim solution system. During this period there will be no fines imposition.

In effect, this means that all previously inserted UBO-related details into the interim system must be processed again into the final system with the most up-to-date status as of 14/11/2023 and also record any updates thereafter. In order to avoid fines this must be done by 31/12/2023.

Period B: 01/01/2024 – 29/02/2024

Those who have not complied with the updating/ re-registration of their UBOs into the final system during Period A, will be subject to a fine. The fine will be calculated daily from 01/01/2024 until the date of submission (* see fines note below). After the resulting fine is paid, they will then be able to proceed with registration and/or suspension and/or change without any further financial burden.

*Fines: By failing to comply, the legal entity and potentially each of its officers shall be subject to a fine of €200 and a further daily fine of €100 until the date of compliance, with a maximum charge of €20,000. Further, there could be a criminal liability or prosecution of any person failing to comply.

Period C: 01/03/2024 onwards

During this period, all actions based on the relevant Directive (K.D.P. 112/2021, as amended) will be available as below:

• Updating the Register of Beneficial Beneficiaries
• Confirmation of Beneficial Beneficiaries
• Mismatch
• Electronic Research in the Register of Beneficial Beneficiaries
• Request for exemption from disclosure of information
• Request for access to the details of a minor
• Calculations of monetary charges where applicable

In case you have any questions, please do not hesitate to contact us for further professional assistance.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.

by Andria Papageorgiou

A Step-by-Step Guide to Setting Up a Partnership in Cyprus

A. Introduction:

Setting up a partnership in Cyprus can be an excellent way to establish a business and benefit from shared responsibilities and resources. Whether you’re looking to start a general partnership (GP) or a limited partnership (LP), this step-by-step guide will help you navigate the process and ensure compliance with Cyprus laws.

B. Process:

1. Choose the Partnership Type: Before proceeding, it’s crucial to decide on the type of partnership that best suits your business goals. In a GP, all partners have unlimited liability and share equal management responsibilities. An LP, on the other hand, involves general partners with unlimited liability and limited partners with liability limited to their investment.
2. Select a Name for Your Partnership: Choose a unique and distinguishable name for your partnership. It should not be similar to any existing businesses in Cyprus to avoid confusion. Ensure that your chosen name complies with the requirements set by the Department of Registrar of Companies and Official Receiver.
3. Draft a Partnership Agreement: While not legally required, drafting a partnership agreement is highly recommended to establish clear guidelines and avoid potential disputes. The agreement should include key details such as the partnership’s purpose, capital contributions, profit-sharing arrangements, decision-making processes, and mechanisms for resolving conflicts.
4. Register Your Partnership: To register your partnership, you’ll need to submit the necessary documents to the Department of Registrar of Companies and Official Receiver.
5. Obtain Necessary Permits and Licenses: Depending on the nature of your business activities, you may need to obtain specific permits or licenses from relevant authorities in Cyprus.
6. Register with the Tax Department: Once your partnership is registered, you must register with the Cyprus Tax Department for tax purposes. You will receive a Tax Identification Number (TIN) for your partnership. Comply with all tax obligations, including filing tax returns, maintaining proper accounting records, and paying taxes in a timely manner.

C. Conclusion:

Setting up a partnership in Cyprus involves a systematic approach to ensure legal compliance and a solid foundation for your business. By carefully following the steps outlined in this guide, you can establish a partnership structure that aligns with your goals and positions your business for success.

Should you have any further questions, please do not hesitate to contact us at info@apapageorgiou.com.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as financial or investment or legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information. 

by Andria Papageorgiou

Registration of a Non-Profit Organisation in Cyprus

In Cyprus, there are currently four primary types of non-profit organizations:

• Non-profit Companies: These entities are established with the purpose of serving non-profit objectives. They operate with the intention of benefiting the public or a specific group without pursuing commercial gains.
• Foundations: Foundations are established with the unique characteristic that all their assets are dedicated to a specific cause or purpose. They are typically created to support charitable, educational, scientific, or cultural activities.
• Societies: Societies are formed as unions comprising a minimum of 20 members. Their primary objective is to achieve a specific non-profit goal or purpose. These organizations work towards common interests or causes, fostering collaboration and collective efforts.
• Clubs: Clubs are associations formed by a minimum of 20 members, primarily for entertainment or recreational purposes. These organizations provide a platform for individuals with shared interests to come together, engage in activities, and promote social interactions.

 These distinct types of non-profit organizations in Cyprus play crucial roles in various sectors, contributing to the betterment of society, the promotion of social causes, and the cultivation of shared interests.

It is important to note that each type of organization may have specific legal requirements and regulations governing its establishment, operation, and governance.

1. Non-Profit Companies:

 Non-profit companies in Cyprus, governed by the Companies Law (Cap. 113), differ from for-profit companies in terms of their main characteristics:

• Dividend Distribution: Non-profit companies are prohibited from distributing dividends to their members or shareholders. Instead, any surplus generated is to be reinvested into furthering the organization’s non-profit objectives.
• Objectives: These companies can be registered to promote specific causes such as art, science, charity, or any other similar non-profit objective. The primary focus is on advancing public welfare or specific societal needs rather than generating profits for the shareholders.
• Regulatory Requirements: Non-profit companies are subject to the same legal requirements as for-profit companies, including the maintenance of audited accounts, adherence to annual levy obligations, and compliance with dissolution procedures such as strike-off or liquidation.
• Registration Authority: The Registrar of Companies is the competent authority responsible for the registration and oversight of non-profit companies in Cyprus.

 2. Foundations:

Foundations in Cyprus are governed by the Societies and Foundations Laws of 1972 and 1997.

The main characteristics and requirements of foundations can be summarized as follows:

• Legal Definition and Purpose: Foundations are established with the principle that the entirety of their assets must be dedicated to a specific purpose or cause. This ensures that the resources are utilized for the intended objectives, such as charitable, educational, scientific, or cultural endeavors. 
• Membership and Funding: Foundations can be established by a single individual (one member) and there is no specific minimum amount of funds required for their formation. 
• Registration Authority: The Ministry of Interior is the competent authority responsible for the registration and oversight of foundations in Cyprus. To initiate the registration process, certain documents must be submitted, including the founding act, details of administration members, foundation name and address, foundation emblem (if applicable), and a lawyer’s letter. 
• Dissolution or Liquidation: Foundations may undergo dissolution or liquidation under certain circumstances. In such cases, the remaining funds of the foundation are transferred to the authorities of the Republic of Cyprus, who are responsible for utilizing these funds for the cause originally supported by the dissolved or liquidated foundation. 

3. Societies (or Associations): 

Societies also referred to as associations, are governed by the Societies and Foundations Laws of 1972 and 1997 in Cyprus. Here are the key points and requirements related to societies: 

• Definition and Purpose: According to the law, a society is defined as an organized union of at least twenty (20) individuals who come together to achieve a specific non-profit objective. These objectives can range from charitable, educational, cultural, or other similar non-profit endeavors. 
• Registration Authority: The Ministry of Interior is the competent authority responsible for the registration and oversight of societies in Cyprus. It is through this authority that the registration process should be initiated. 
• Registration Requirements: To register a society, the following documents and information are typically required: a memorandum of association, names and addresses of the administration members, articles of association signed by the members, the society’s emblem (if applicable), and a description of any movable and/or immovable property held by the society at the time of application. 
• Publication: The certificate of registration, in the prescribed form, is published in the official Gazette of the Republic of Cyprus to formalize the society’s legal status. 
• Dissolution: A society can be dissolved either by a resolution passed by the assembly of its members or if the number of members falls below twenty. Alternatively, a court order can also initiate the dissolution process.

4. Clubs:

Clubs in Cyprus are regulated by the Club Registration Law of 1972 (Cap. 112). The key characteristics and requirements of clubs can be summarized as follows: 

• Definition and Purpose: A club is defined as the association of at least twenty individuals who come together for social activities, mutual entertainment, or any other lawful non-profit purpose. The primary focus of clubs is to foster social interactions and provide a platform for shared interests and recreational pursuits. 
• Minimum Number of Members: A club must have a minimum of twenty members to be considered valid. 
• Registration Authority: The registration of clubs is overseen by the local district office where the club premises are located. Prior to commencing operations, the club must submit an application to the local district office. 
• Application Requirements: The application must include essential information such as the name and purpose of the club, the club’s address, the names of the secretary and all members, the total number of members, and the club’s memorandum.

 Should you have any further questions, please do not hesitate to contact us at info@apapageorgiou.com.

Disclaimer: Please note that the information provided above is intended as an overview of the four types of non-profit organizations and should not be regarded as legal advice. To ensure proper understanding and compliance with the specific requirements for registering a non-profit company, society, foundation, or club, it is strongly recommended to seek professional legal advice. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information. 

by Andria Papageorgiou

Directors’ duties under Cyprus Law

A. INTRODUCTION

The board of directors of a Cyprus company is the administrative body responsible for the day-to-day management of the company.

According to section 170 of the Cyprus Companies Law, Cap. 113, it is mandatory for a private company limited by shares to have at least one director on the board of directors while public companies must have at least two directors. In the case of private companies with a single member, the sole director may also be the secretary of the company (section 171 (1) of the Cyprus Companies Law, Cap. 113).

The provisions of the Cyprus Companies Law, Cap. 113 do not explicitly fix the maximum number of directors to be appointed on the board of directors of a Cyprus company, however, this restriction is imposed in the articles of association of each Cyprus company.

Directors exercise extensive powers in the management of their companies, influencing their company’s conduct, by virtue of their involvement in the decision-making process. Under Cyprus law, the directors are considered to stand in a fiduciary relationship, with their company, and are subject to specific duties, stemming from their relationship.

B. WHO MAY BE APPOINTED AS A DIRECTOR?

Any natural person or legal entity qualifies to be appointed as director of a Cyprus company.

The Cyprus Companies Law, Cap. 113 does not make explicit provisions of any formal requirements for the appointment of a person or legal entity in the position of director.

Furthermore, the director of a Cyprus company need not be a shareholder of the company.

C. APPOINTMENT AND REMOVAL OF DIRECTORS

The first directors of a Cyprus company are appointed by the subscribers of the company and from there on, the procedure to be followed for the appointment and/or removal of subsequent directors is governed by the company’s articles of association.

Subject to the articles of association of the company, the appointment of a director will arise in instances such as to fill a casual vacancy, i.e. when a director has retired or when it is necessary to appoint an additional director.

The company may by ordinary resolution remove a director from office, prior to the expiration of his period of office, by adopting an ordinary resolution in general meeting, notwithstanding, anything contained in the articles of association of the company or any agreement between the director and the company.

D. GENERAL DUTIES

1. Fiduciary Duties

A director owes a duty to the company to act bona fide, meaning in good faith in the best interests of the company. This duty is commonly called the “fiduciary duty” of directors. The core of this duty is that the directors must act to promote the success of the company, taking into consideration both the short-term and long-term interests of the shareholders. In order to adequately execute this duty, directors must be loyal. In other words, they must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members. This gives directors considerable leeway, but if they establish their honest belief to that effect, then necessarily there must be some evidence that they actually considered the matter.

In considering whether a director did act bona fide in the interests of the company, the question can be asked in terms of whether an intelligent and honest director could in the whole of the circumstances reasonably believe the transaction to be for the benefit of the company. In order for a director to decide whether or not an act is promoting the success of the company, he examines the objectives of the company as set by the members of the company.

It is of utmost importance that directors must while exercising their fiduciary duties act in accordance with the company’s constitution (such as the articles of association) and exercise their powers only for the purposes allowed by law. The payment of a dividend when there are insufficient profits to permit distribution is an illustration of a breach of this duty.

1.1 Independent judgment

Directors cannot without the consent of their company, fetter their discretion in relation to the exercise of their powers, and cannot bind themselves, to vote in a particular way, at future board meetings. This is so even if there is no improper motive, or purpose and no personal advantage to the director.

1.2 Loyalty and conflicts of interests: Duty to avoid a conflict of interest is one of the directors’ fiduciary duties

It is a long-established equitable rule precluding a fiduciary/director from entering without consent into engagements in which he has or can have a personal interest conflicting or which may conflict with the interests of those whom he is bound to protect

The no-conflict rule refers to the exploitation of property, information or opportunity of which a director became aware at a time when he was a director of a company. This duty applies whether the conflict is between ‘interest’ and ‘duty’ ie between the direct or indirect interests of a director and the interests of the company and his duty to advance those interests and/or where there is a conflict or possible conflict between ‘duties’ (for example where a director is a director of two or more companies and has a separate duty to advance the interests of each company).

Not only directors must not place themselves in a position of a conflict or possible conflict, but also in case they find themselves in such a position, they must regulate or abandon the conflict.

1.3 Disclosure

Directors have the duty to disclose any, direct or indirect, interest in a General Meeting. However, they do not have to account for interest if they are allowed to have that interest by the Company’s Constitution, or the interest has been disclosed to the Board and approved by the Company in a General Meeting.

Apart from these, a Director in order to be is a good fiduciary, must act fairly as between the Members of the Company.

1.4 Duty to exercise skill and care

In addition to their fiduciary obligations, directors should be subject to duties of care and skill appropriate to the modern commercial world, bearing in mind the increased emphasis on higher standards of corporate governance. In general, the breach of the duty gives rise to liability for negligence; however, it is important to note that directors are rarely sued for negligence in the management of a company’s affairs.

Enforcement of the duty of care and skill takes place when the company goes into insolvent liquidation or administration where a liquidator or administrator may consider it worthwhile to pursue a director for wrongful action or decision. If in the course of a winding-up of a company, it seems that directors knew or ought to know that the company has no reasonable possibility of paying and nevertheless, they did nothing to cease the company from being credited, then they may become personally liable for that credit as per section 307(v) and 312 of the Companies Law. In this case, directors can avoid the liability if they show that they have taken “every step with a view to minimizing the potential loss to the companies’ creditors as they ought to have taken“.

1.5 Standard of care, skill, and diligence

All directors of the company are collectively responsible for the company’s affairs, but equally directors’ duties are ‘personal and inescapable’ duties, and so within that collective responsibility each director must meet the appropriate standard of care, skill, and diligence. The standard of care, skill, and diligence that is required is that of a reasonably diligent person who has taken on the office of director, set in the context of the functions undertaken, with that objective minimum standard capable of being raised in the light of the particular attributes of the director in question. For example, if a director is a professional person, such as a chartered accountant, is required to meet the standard expected from a reasonably diligent director carrying out the functions carried out by him in that company and having that personal attribute. This interpretation of the duty of care is set out in Re D’ Jan of London Limited [1993] B.C.C. 646. It is commonly known as the “objective” or “benchmark” test of what “the reasonable man” would expect of a director in particular circumstances. If a director has a specific skill or level of expertise, then he or she must exercise that skill in addition to the “benchmark” test.

2. Statutory Duties

The statutory duties of directors are enforced by the Companies Law, Cap. 113, Income Tax Laws, VAT, Customs & Excise legislation, Health and Safety and Environmental legislation.

As far as Companies Law is concerned, directors have various duties to the company, its shareholders, and the public. To start with, directors must be registered as per s.192. The number of shares or debentures which are held by them must also be stated in the register (s. 187). In case of transfer of shares in a company, directors must take all reasonable steps to secure those particulars with respect to the payment made to him as compensation for loss of office, including the amount thereof, are disclosed (s. 185). In addition to this, directors have the duty to disclose any direct or indirect interests, if any, which arise under a contract or a proposed contract with the company (s.191). Directors’ salaries, pensions, compensations, and/or loans offered to them by the company must be transparent and hence, included in any accounts of a company laid before it in general meeting (s. 188 and s. 189). Directors must make a statement in lieu of prospectus to be delivered to the registrar of companies upon company ceasing to be a private company (s. 31), make contracts following the formalities of s. 33 and sign documents that require authentication as per the provisions of s. 37. Regarding the publication of the prospectus, directors are obliged to draft the same according to the formalities of ss. 38 and 39. Moreover, directors must execute the transfer of shares taking into consideration pre-emptive rights and the procedural formalities stated in s.71 to s.82, such as the issuance of both the certificates of shares and the certificates of all debenture stock allotted or transferred within two months after the allotment.

Further to these duties, directors must keep books of account available for inspection (s.141) and make a complete set of financial statements in accordance with the International Accounting Standards (s.142). They must attach to the financial statements a report in relation to the status and the foreseeable development of the company affairs, as well (s. 151). Any alteration or initial drafting of books of account, papers, and securities must be made with due consideration since in winding up, any mistakes in these documents may give rise to personal liability under s. 308. Last but not least, in case of directors make a petition to the Court for winding up, they must comply with the procedures of s.213 and contribute the assets of the company in accordance with s.207.

3. Transparency in financial reporting

It is worth mentioning that directors must keep books of account and financial statements open for inspection at least for a period of six years and in a place within the Republic of Cyprus. If a director does not comply with this duty, then he or she is liable for committing a criminal offense, the penalties of which range from a default fine to 2 years imprisonment. Moreover, he or she will have to compensate the company with an amount equal to the loss that occurred by his or her breach of duty.

E. TO WHO ARE THE DUTIES OWED?

Directors fiduciaries’ duties are owed to their company as a whole, and not to individual shareholders, creditors employees etc. However, in certain circumstances, the director’s fiduciary duties may extend to shareholders (i.e. for example where the directors are involved in the sale of shares of a shareholder) or to creditors (i.e. for example, where a company is insolvent).

F. REMEDIES FOR BREACH OF DUTIES

In the event of a violation of the above duties, the company – (or any minority shareholder by a derivative action) – may bring an action against the directors for inter alia:

• The injunction to block them for violating their duties;
• Declarations and orders for setting aside the decisions taken;
• Damages;
• Restoration of the Company’s property;
• Cancellation of the relevant contracts; and
• Account of profits.
• Summary dismissal of a director.

In case you have any questions, please do not hesitate to contact us for further professional assistance.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.

by Andria Papageorgiou

Registration of the Ultimate Beneficial Owner(s) (“UBOs”) to the Registrar of Companies

The Department of the Registrar of Companies and Official Receiver, has been appointed as the Competent Authority for the operation of the Registration of the UBOs of Companies and Other Legal Entities, based on the Prevention and Suppression of Money Laundering Activities and Financing Terrorism Law and similar Directives.

Hence, all registered/incorporate legal entities, have the obligation to submit electronically, the information of their UBOs under the Beneficial Owners Register operated in the Department of the Registrar of Companies and Official Receiver.

The Partnerships who are registered in the Company’s Registrar have also been included in the list of the entities with the above respective obligation.

UBO can be considered as the physical person who owns/control a legal Entity or the physical person to whom an activity or transaction is operated by a third party.

• Direct ownership means a physical person who holds the 25% of shares plus 1 share or shares over 25%
• Indirect ownership means a legal entity/ies who hold on behalf of the physical person/s the 25% of shares plus 1 share or shares over 25%

Based on the above, the Companies and Other Legal Entities (Partnership) incorporated before 12/03/2021, are obligated to submit in Registrar of Companies the information required for the real beneficial owners the latest by 12/03/2022.

The submission must be done electronically by the Company or any other Legal Entity (Partnership) via the Government Gateway Portal (Ariadni), that operates since 16.03.2021 without any fees.

The steps for the electronic submission, that need to be taken, are as follows:

1. Each Company or Partnership must create a profile as an Organization in the Government Gateway Portal (Ariadni) https://eservices.cyprus.gov.cy.
2. The Identification of the Entity’s / Partnership profile must be done by the physical presence of the Entity’s/Partnership representative at the following authorized centres:

• Unified Service Center (CSR) – 13-15 Andrea Araouzou, 1421 Nicosia
• District Post Offices (KEPO)
  • Nicosia – 100 Prodromou, 2063
  • Limassol – 16 June 1943 (former Gladstonos) 3022 Paphos –
  • Aristotelis Savva 23, 8025
  • Larnaca – Vassileos Pavlou Square, 6023
• Citizens’ Service Centers (KEP)
  • Nicosia – Georgiou Seferis, 2415 Engomi
  • Limassol – Spyrou Araouzou 21, 3036
  • Famagusta – Eleftherias 83, 5380 Deryneia

The following companies have an exception from the UBOs registration:

1. Companies that are licensed under a Regulated Market and are subject to notification requirements based on the European Union Legislation.
2. Companies which are, subject to equivalent international standards that ensure the ownership transparency.
3. Companies which submitted to the Registrar of Companies, the application for the deletion of their officers based on the article 327(2A)(a) of the Companies Law before 12/03/2021 or the companies that were without any officers before 12/03/2021.
4. Companies to which the liquidation procedure has started before 12/03/2021.

More details in relation to the submission of the Beneficial owner’s information in the Register and its operation can be found at the following links:

1. Regulatory Administrative Act No 112/2021
2. At the manual for the Interim Solution of the Register of Real Beneficiaries: CLICK HERE
3. To the answers on frequently asked questions in relation to the Real Beneficiaries: CLICK HERE
4. Το the announcements of the Registrar of Companies.

Based on the above the Ministry of Energy, Commerce and Industry and the Department of the Registrar of Companies and Official Receiver, are inviting you to proceed as soon as possible and before the 12 March 2022, with the submission of the Real Beneficiaries information at the Real Information Register. Please note that no further extension will be given.

During the collection and submission of the Beneficial Owners’ information, no penalties will be imposed against the entities, until 12/03/2022. Any changes as to information of the UBOs should be submitted within 14 days since the day of the information/changes is acknowledged.

In case you have any questions, please do not hesitate to contact us for further professional assistance.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.