Starting a business in Cyprus: what mistakes in the statutory documents can be costly?

Starting a business in Cyprus is an attractive opportunity for international entrepreneurs thanks to its favorable tax climate and strategically convenient location.

Errors in defining the scope of the company’s activities

The company’s articles of association must clearly specify the types of activities it will engage in. According to the Cyprus Companies Law (Cap. 113), the company’s activities must be consistent with its statutory objectives. If the articles of association do not specify specific types of activities or if they are formulated too broadly, this may lead to legal complications. For example, a company engaged in retail trade cannot engage in wholesale trade without making the appropriate amendments to the articles of association.

Recommendation: When drafting the articles of association, it is recommended to specify the company’s activities in detail, avoiding general wording. This will ensure legal certainty and prevent possible disputes with regulators.

Errors in determining the capital structure

Although the minimum share capital for a private company in Cyprus is €1, it is important to correctly reflect the distribution of capital among shareholders. Incorrect reflection of shares may lead to disputes between shareholders and difficulties in managing the company.

Recommendation: Carefully document the distribution of capital and shareholder shares in the articles of association to avoid future conflicts.

Errors in defining governing bodies

The charter should clearly describe the company’s governance structure, including the powers and responsibilities of directors and other bodies. Uncertainty in these matters can lead to internal conflicts and difficulties in decision-making.

Recommendation: Clearly define in the charter the powers and responsibilities of each governing body, as well as decision-making procedures.

Errors in the wording of the terms of liquidation of the company

Liquidation procedures must be described in detail in the articles of association, including the procedure for distributing assets and settling debt obligations. The absence of such provisions may lead to legal disputes and financial losses.

Recommendation: Include detailed provisions on company liquidation in the articles of association that comply with the requirements of the Cyprus Companies Law.

Errors in defining the rights and obligations of shareholders

The charter must establish the rights and obligations of shareholders, including their participation in the management of the company, the distribution of profits, and other key aspects. The absence of such provisions may lead to shareholder dissatisfaction and even legal disputes.

Recommendation: Develop clear provisions in the charter governing relations between shareholders, their rights and obligations, to ensure harmonious cooperation and prevent conflicts.

Thus, errors in the statutory documents when registering a business in Cyprus can have serious consequences. Careful consideration of the articles of association, taking into account all legal requirements and the interests of shareholders, will help to avoid many problems and ensure the successful operation of the company. It is recommended to consult professional lawyers specializing in Cypriot corporate law to develop and review the constitutional documents. It is important to provide for clear liquidation procedures in the constitution, including the procedure for settling debts and distributing assets. The absence of such provisions may lead to lengthy legal proceedings and financial losses.