User:Llm86/Maltese private limited company

The Maltese Private Limited Company is created under the Maltese Companies Act of 1995 (abbreviated: “CA”) which came into force on 1 January 1996. The legal system in Malta is very much influenced by the British; however the legal structure was predominantly based on the Common Law in Continental Europe. In this way the regulations for the Maltese Private Limited Company, which is an entity that has a legal personality distinct from its members (Sect. 4 CA), reflect ideas from both legal systems. In the following several key issues are going to be addressed.

Company Formation

A Private Limited Company in Malta at can be founded by at least two persons, but not more than fifty, who subscribe the Memorandum of Association(Sect. 68 and 209 CA). Foreigners who would like to become shareholders of a private limited company have to be authorized by the Malta Financial Centre (MFSC). For representation and administration purposes at least one director and a company secretary have to be appointed by the shareholders (Sect. 136-138 CA). The company’s name shall include the words “private limited company” or “limited” (abbreviated: “ltd.”). It may neither be equal or very similar to another’s company’s name nor can it be offensive or undesirable (Sect. 70 CA). The minimum share capital amounts to 1.164,69 € divided into shares held by the members. Their liability is limited to the amount subscribed. It is not allowed for a Private Limited Company to offer the shares to the public (Sect. 72 CA). The company comes into existence and is allowed to commence business as soon as it is registered at the Registrar of Companies and has been filed a Certificate of Incorporation. For this purpose the members of the company are required to hand in the signed Memorandum of Association and Article of Association (the latter is optional) as well as a bank’s confirmation that at least 20% of the minimum share capital have been paid up (Sect. 68, 76 and 77 CA). The fees charged for registration depend on the amount of share capital subscribed and vary between 210 € and 2.250 €. Certain information like name, registered office, CompanyID and company status are open to the public.

Constitutional documents

The Maltese Private Limited Company is constituted by two documents being the Memorandum of Association and the Articles of Association, whereas the latter is optional.

Memorandum of Association

The Memorandum of Association is an essential element of the company’s formation process and has to contain the following information (Sect. 69 CA):

• the name and residence of the subscribers
• the name of the company
• the registered office in Malta
• the objects of the company (details see below)
• the amount of share capital, the division thereof into shares of fixed amounts, the number of shares taken up by each subscriber
• the number of directors as well as the name and residence of the first director
• the name and residence of the first company secretary

The objects of the company should be described in detail naming all main business activities. However it is possible to leave some space for interpretation. In Maltese company law a company may not be bound by a contract if it undertook business activities beyond its defined objects and the contract partner was aware of this fact (so-called “ultra vires doctrine”).

Articles of Association

The Articles of Association are not required for registration but important for the company’s organization and functioning. They include policies and procedures for internal processes, e.g. the convening of the shareholder meetings, the modalities for the transfer of shares and additional power and duties of directors. If the company refrains from signing and registering its own Articles of Association or if they do not provide for all relevant issues, a standard document called “First Schedule” which is attached to the Companies Act becomes valid automatically (Sect. 75 CA).

Share capital

Minimum share capital

The minimum share capital for a Private Limited Company in Malta amounts to 1.164,69 € whereas only 20 % have to be paid up before registration (Sect. 72 CA). Shareholders who subscribed a certain amount of shares can only avoid their duty of payment if all shareholders agree on a capital reduction. Contributions in kind may be declared as part of the share capital in the Memorandum of Association (Sect. 73 CA). Admissible are assets with a determinable economic value but no services. It is necessary to hand in an independent expert’s report at the Registrar of Companies describing how the assets have been evaluated before registration. The contributions in kind should be transferred to the company within 5 years after registration. In order to avoid disguised contributions in kind it is forbidden for the company to buy assets from shareholders within 2 years after registration. There exist only two exemptions (Sect. 74 CA):

1. The asset deal might be admissible if the company files the expert's report mentioned above within 6 months after the sales contract was concluded and approved by the shareholder meeting.
2. It would not be forbidden to buy assets from shareholders if the company’s main object is to buy and sell assets.

Capital increase and reduction

Within 5 years after registration the amount of share capital may be increased through an ordinary shareholder resolution up to a maximum amount stated in the Memorandum of Association, if any. In case the Memorandum of Association provides for a higher percentage an extraordinary resolution may be required for the capital increase. The shareholder resolution has to be handed in at the Registrar of Companies together with a bank’s confirming that at least 20 % of the increase have been paid up already (Sect. 85 CA). A planned capital reduction may not decrease the company's share capital beyond the minimum capital mentioned above and has to be published by the Registrar of Companies (Sect. 401 CA). Thereafter creditors have 3 months to object the reduction. Otherwise the capital reduction becomes effective and registered. In case of a doubtful financial situation the Registrar may demand for additional collateralization (Sect. 83 CA).

Bodies of the Company

Company director(s)

The Private Limited Company is represented by at least one director who is responsible for the general governance as well as the general supervision of its affairs. The director is obliged to act in good faith and in favor of the company’s well-being. Any limitation of powers imposed on the directors in the Memorandum of Association have no effect on his contractual relations to third parties but only inside the company (Sect. 136, 137 CA).

Company secretary

One of the director’s duties is to appoint and supervise a company secretary. This may be a natural or legal person (e.g. tax or legal consultancies) responsible for administration and communication e.g. with the Registrar of Companies. The company secretary is not entitled to represent the company or conclude contract in its name (Sect. 138 CA).

Advisory boards

The Articles of Association may contain the possibility to appoint further advisory boards that assist the directors on a regular or non-regular basis by providing expertise to certain topics or by acting as mediation party in case of conflicts.

Shareholder meeting

The shareholder meeting is the highest decision making body in the Private Limited Company. Its responsibilities comprise decisions on:

• capital increase and reduction
• appointment and removal of directors
• limitation of directors’ power
• approval of the annual accounts
• commissioning of external auditors
• insolvency
• liquidation and wound-up of the company

The following regulations concerning the shareholder meeting arising out of the Companies Act may be altered or supplemented by special provisions in the Articles of Association. It must be held at least once a year (ordinary shareholder meeting). If there are more than 15 months between two ordinary meetings or other formal requirements disregarded a fine of ca. 2,329.37 plus € 46.59€ per day of further delay might be imposed on the company. Every single or group of shareholders who subscribed to at least 1/10 of the company’s share capital is allowed to call for extraordinary shareholder meetings (e.g. to change the accounting currency or dissolve the company). All shareholder resolutions have to be handed in at the Registrar of Companies (Sect. 128-132 CA). Shareholders may appoint a proxy to attend and vote at his place in the shareholder meeting. The appointment has to be made in writing (Sec. 133 CA).

Special forms

The International Holding Company (IHC) is a special form of the Private Limited Company. It can be used for tax saving purposed especially by large European firms who benefit from double taxation agreements and the Maltese tax system. The IHC is subject to the same legal requirements as the Private Limited Companies; however its permissible business activities are limited to the holding and administration of equity interests and its shareholders have to reside outside of the country. In essence the tax advantage arises because the Maltese income tax (35%) is refunded in total as soon as the income was earned by a foreign company in which the IHC participates with more than 10% of the shares. It is important to mention that the dividends that the IHC pays to a company in another European country are mostly tax free (depending on the double taxation agreements).

References

Category:Corporations law Category:Malta Category:Types of business entity