Classes of shares of a limited liability company in Cyprus

Classes of shares of a limited liability company in Cyprus

The differences in the types of the share capital of a limited liability company in Cyprus should be understood:

1. Authorized share capital.
2. Issued or Distributed Share Capital – the total nominal amount actually issued to shareholders at any time.
3. Paid-in share capital – the amount paid to date on the shares issued.
4. Unpaid share capital – the amount that the company has the right to require from shareholders to make contributions.

It should be noted that in Cyprus there is no minimum share capital requirement for private companies. However, public companies must have a minimum share capital of EUR 25,630 (Cypriot pounds 15,000).

A company can have classes of shares. Different classes of shares imply different rights, i.e. the right to vote or receive dividends in exchange for their capital contribution. Shareholders receive their share of the profits by paying dividends. The right to dividend arises if there is a distributable profit, the split of which has been declared.

The distribution of shares must be spelled out in the Articles of Association of the company. Shareholders can receive a return on their capital investment upon liquidation of the company or reduction of capital in accordance with the provisions of chapter 113 of the Companies Act. If different shares have different rights, then they belong to different classes of shares. The two most common classes of shares are as follows:

1. Ordinary shares (equity instruments), which constitute the overwhelming majority of shares and have ordinary rights without any special definition.
2. Preferred shares with preemptive rights to dividends and/or capital returns.

Preferred shares usually pay a preferential dividend, which is measured as a percentage of the par value of the share. Such dividend is presumed to be cumulative unless otherwise indicated. Thus, if dividends are not paid within one year, 20% of dividends will be paid the next year. Dividend priority means that although dividends will be paid more regularly, they will be exactly the same and will not increase if more profits are made.

Preferred shares can take precedence over capital returns in liquidation.

With a capital return priority, these shares are a safer investment than ordinary shares, as they are more likely to return capital even if there is not enough capital to pay out to all shareholders. However, they are less profitable as they will not participate in any surplus.

Ordinary shares have less guarantee of regular dividend payments, but benefit if more profits are made.

There are also participating preferred shares, which combine the advantages of priority of preference and participation in the remaining profits or surplus capital of the common stock.

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