Published Article on LinkedIn, on November 4, 2020 by John Joannides
Experienced Corporate Lawyer in Cyprus specialising in Cross-Border Transactions | Wealth Structuring | Maritime Law
Share Buy Back
A Cyprus Private Limited Company is not permitted to “buy back” its own shares according to Article 57(A) of CAP.113 of the Cyprus Companies Law, which only permits a buy back of shares with respect to public companies;
Instead, Cyprus Limited Private companies avoid the effects of Article 57(A) by creating, issuing and allotting Redeemable Preference Shares which they may subsequently redeem without contravening the underlying principle of Cyprus company law which prevents private companies from buying back their own shares;
Redeemable Preference Shares (“RPS”)
The matter of Redeemable Preference Shares is regulated by article 57 of Cap.113 of the Cyprus Companies Law, to the following effect:
The premium payable on redemption of the shares should be paid either:
1. Out of profits that would otherwise be used to distribute dividends or;
2. From the share premium account (article 57 (1)(c)).
The par value of Redeemable Preference Shares should be paid either:
1. Out of the profits that would otherwise be used to distribute dividends or;
2. From a fresh issue of shares (article 57(1)(a)).
Provided that the articles of association of a company allow for the issue and allotment of Redeemable Preference Shares shares, those shares must be issued as RPS from the outset. Consequently, already issued ordinary shares cannot be converted into RPS. The RPS must be issued and allotted as RPS from the authorised, yet unissued share capital of the company. In the event that the articles of association do not provide for the issuance of RPS they will need to be amended to allow the issue and allotment of RPS.
1. Redeemable Preference Shares: Cyprus Corporate Financing
RPS are frequently used by Cyprus private limited liability companies to finance private equity and other corporate transactions.
True to its pro-business philosophy the Cyprus legal framework also extends versatility to the terms of redemption, as such, and provided the RPS are fully paid, redemption may occur:
1. At the option of the issuing company;
2. At the option of the shareholder;
3. On the occurrence of a particular event;
RPS may either be issued at a nominal value or at a premium. It is reiterated that RPS must be issued as RPS from the outset, ordinary shares may not be converted into redeemable preference shares subsequent to being issued.
The rights attached to redeemable preference shares may include, but are not limited to:
1. The voting rights of the RPS holder;
2. The rights to dividends and priorities on dividends;
3. The timing and/or conditions of redemption;
4. The repayment of capital;
Lastly, it should be noted that upon redemption an RPS is treated as cancelled, subsequently, the amount of the company’s issued share capital is reduced by the nominal value of the shares redeemed whereas the company’s authorised share capital is unaffected by the redemption.
