Insights: Cyprus Company Law – Shareholders Agreements

1.    Introduction

The questions below are intended to help shareholders identify and, if relevant, negotiate certain (indicative only) matters regarding regulation of a Cyprus company.
The questions are aimed at providing a starting point for discussions between the owners regarding the establishment of a management structure of a Cyprus company. Note that not all the matters stated are relevant in all circumstances.

2.    Shares, transfer of shares, shareholders and shareholder meetings

2.1   Shares

•  The proportions shareholders will hold shares in the company;
• If there will be different classes of shares / providing different rights to different classes of shares?
• Whether special provisions are required as to a share of deceased members.

2.2   Transfer of shares

• Whether the right to transfer shares is to be restricted;
• Whether transfers will be permitted between existing shareholders, family members, family trusts or to associated companies?
• Whether new company issue of shares need to be offered first to existing shareholders pro rata?
• Whether there are to be pre-emption rights to share sales/transfers;
• Whether the directors are to be given discretion to suspend the registration of shares, or block the transfer of shares, always or only in certain circumstances?
• Whether a purchasing shareholder(s) is to be given a period of time to pay a leaving shareholder?
• Will immediate lump sum payment be required or will instalment or deferred payment be accepted?

2.3   Valuation of shares

• Basis for valuation of shares on departure of a shareholder:
  • pro rata – according to the percentage shareholding in the company and the value of the company);
  • whether any specific accounting principles which should be applied;
  • whether the company should be valued on an asset basis (i.e. its current assets less its current liabilities) or on an earnings basis (a multiple on profits)?
  • whether future potential of the company should be valued and if so, how?

2.4   Shareholders

• The time to be devoted to the business;
• A duty to notify of litigation plus other major occurrences to the other shareholders;
• A duty to maintain control of the company’s assets;
• A right to management information and inspect books of the company at its premises;
• Are non-competition covenants required? e.g. not to compete against the company during trading of company and for a specified period after ceasing to be a shareholder.

2.5   Shareholder meetings

• What the quorum is to be for shareholders meetings;
• Whether the Chairman has a casting vote;
• How a deadlock situation is resolved.
• Will policies be required in relation to specific issues, for example, approval of business plans; dividends; working capital; long term finance and loan capital; shareholders guarantees of borrowings;
• Will the consent of all, a majority or only one of the shareholders be required for any situation, including;
  • issue of new shares;
  • alterations to share capital;
  • introduction of new shareholders;
  • change in the nature of the company’s business or commencement of a new business by the company;
  • expansion into a new geographical area;
  • signing of major contracts;
  • substantial sale of assets or disposal of business by the company;
  • amalgamation or merger;formation, acquisition and disposal of subsidiaries;
  • charging assets of the company;
  • borrowings in excess of limit;
  • capital expenditure in excess of limit;
  • lending or giving security or financial accommodation;
  • appointment and dismissal of directors/employees/agents;
  • directors and other employees remuneration;
  • acquisition and/or disposal of property;
  • factoring and/or assignment of debts;
  • alterations to memorandum and articles;
  • alterations to company’s status as private company;
  • winding up;
  • change of accounting reference date and/or auditors;
  • dealings in intellectual property;
  • acquisition of shares or debentures or participation in any partnership or joint venture by the company;
  • legal action (except trade debt recovery) in the name of the company;
  • unusual or long term transactions;
  • alteration to bank mandate;
  • transactions with connected persons.

3.    Directors / Board meetings

3.1   Directors

• Should there be a maximum and minimum number;
• Who can appoint/remove a director;
• Requirement to secure, as far as possible, continuance in office of any person as director;
• Share qualification required to be Director;
• Whether the directors will have a Service contract.

3.2   Board meetings

• What the quorum for directors meetings will be;
• Whether the Chairman has a casting vote;
• How a deadlock situation is resolved;
• How often will board meetings be held; Whether Directors powers to be restricted on certain matters (eg borrowing powers).

4.      How can we assist you?

A shareholders agreement establishes the rights and responsibilities of all shareholders and sets out how the company should be operated. We can assist by advising and drafting a shareholders’ agreement to suit your needs. Contact us at to discuss your circumstances.