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Sale and Purchase of Shares of a Cyprus private company limited by shares

Transfers of shares in a Cyprus company limited by shares are tax-exempt, provided that the companies in question do not hold immovable property situated in Cyprus. When considering the sale and purchase of shares in a Cyprus private company, it is common for the parties to draw up a share and purchase agreement (the “SPA”).

It should be noted that an SPA is not strictly speaking required under Cyprus law and the shares may be transferred by virtue of a signed and dated instrument of transfer by the Transferor and Transferee. The parties however, may wish to set out the terms and conditions of the transfer of shares, as well as any representations and warranties made in connection with the sale/purchase. It may also be the case that upon the sale/purchase of the shares, new officers will be appointed, the registered office changed, and the books and records of the company transferred to a new company secretary. It is also advisable in such a case that existing powers of attorney be revoked.

Prior to entering an SPA for the acquisition of a company, it is advisable for the Purchaser to engage a Cyprus lawyer to conduct a legal due diligence exercise on the target company. This will alert the Purchaser to any encumbrances on the shares, any irregularities in the appointment of officers, any powers of attorney in issue and any contracts by which the target company is bound. It shall also ensure that the Seller has good title to the shares being transferred and confirm that the company is in good standing. Furthermore, it is necessary to assess whether there are any other shareholders who may have rights of first refusal in relation to the shares, which must be waived prior to the intended transfer of ownership of such shares.

In Cyprus, the regular procedure to be followed for the transfer of shares in a private company is fairly simple and straightforward. If the parties have no commercial or other reasons to enter into an SPA, then the due diligence exercise and drafting of the SPA can be avoided, thus reducing the time required and associated costs.

In case of a simple transfer, the lawyer will check the articles of association of the company to identify the regulations governing the transfer of shares in the company and to assess whether any shareholders have rights of first refusal. If such rights are identified, the existing shareholders should waive such rights and an Instrument of Transfer will be signed by the Transferor and Transferee. The Seller will return his original share certificate pertaining to the shares to the Company for cancellation, and the board of directors will approve the transfer.

Thereafter, the secretary of the company will enter the Transferor as a shareholder in the register of members of the company, at which time the transfer takes effect and title to the shares passes from the Seller to the Purchaser. The secretary of the company shall issue a new share certificate pertaining to the shares in favour of the Purchaser and notify the Cyprus Registrar of Companies of the transfer by submission of Form HE57. The Registrar will in turn proceed to issue a new Certificate of Shareholders.

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