The Rights of Shareholders
I. MAIN SHAREHOLDER RIGHTS
Shareholders have the right to be given notice in accordance with the provisions of the Companies law, Cap 113 so as to attend and vote at the Company’s Annual General Meetings as well as the Company’s Extraordinary General Meetings.
If the shares a shareholder holds have the right to receive dividends, such a shareholder shall be entitled to receive dividends distributed on a pro rata basis.
In the event that the Company will be wound up, a shareholder shall be entitled to receive a share of the Company assets on a pro rata basis.
At the same time, It is also not uncommon for shareholder agreements to be entered into (in relation to private companies) to regulate such matters, as well as to grant additional rights or impose obligations (such as drag-along, tag-along rights/obligations in the event a shareholder wishes to divest its interest in a company).
II. RIGHTS DEPENDENT UPON PERCENTAGE OF SHARES
Subject to any specialised provisions in the articles of association granting express rights or setting thresholds or limitations, the calling of a shareholder’s meeting (requisition) or to ask for the appointment of an inspector requires a minimum 10% shareholding, and a 5% threshold for adding items to the agenda of the general meeting for listed companies.
Generally, a shareholder’s agreement and/or the company’s articles of association may contain provisions requiring a particular percentage of shareholder voting in order to pass and implement specific corporate arrangements.
III. VARIATION OF SHAREHOLDERS’ RIGHTS
The rights of shareholders may be varied by the amendment of the Company’s articles of association, with such amendment requiring the passing of a special resolution with a majority of 75%. Any such amendments to the articles of association, once duly passed, are binding on all shareholders and the company itself, and constitute public notice to third parties on how the company operates.
If a company has issued different types of shares, its articles of association may determine the variation of share rights, by providing that rights attached to any class of shares can be varied, either by:
written consent of 75% of the holders of the issued shares of that specific class; or
an extraordinary resolution passed in a separate general meeting of the holders of the shares.
Shareholder rights may be varied by a shareholder’s agreement but any such amendments may not be binding on all shareholders or the company (only on those who are party to the shareholders’ agreement). It is therefore advisable that any such variation should be reflected in the articles of association.
Regardless of the provisions of the articles of association of a company, shareholders who hold at least 10% of the paid-up capital of the company have the right to requisition the directors to convene an extraordinary general meeting. That right cannot be waived or varied by the articles of association.
Similarly, a shareholder cannot be prevented from applying to wind up a company on the so-called “just and equitable grounds” (abuse of minority rights).
IV. SHAREHOLDERS’ AGREEMENTS/JOINT-VENTURE AGREEMENTS
Shareholders’ agreements and joint-venture agreements are enforceable in the Republic of Cyprus. Shareholder agreements can be entered into between all shareholders, or some shareholders, as well as including the relevant company (or not) as a party, in order to regulate their respective rights and obligations.
In order to enhance the direct enforceability of shareholder agreements and any security or rights granted thereunder, it is customary to transpose key provisions of shareholder agreements into the articles of association of the relevant company while at the same time preserving the confidentiality of commercial provisions of those agreements.
V. VOTING RIGHTS OF SHAREHOLDERS
Any changes to the Company’s structure require shareholder approval. The approval may be provided in the context of an annual general meeting, an extraordinary general meeting or by way of a written resolution (if the articles of association allow for the latter option).
In general, the following thresholds/approval processes apply:
The passing of an ordinary resolution requires a simple majority of the members attending a general meeting (over 50% having the right to attend and vote) is required for the approval of the following:
i. appointment and removal of the company’s director;
ii. alteration of the company’s share capital (including increase of share capital, consolidation and division of share capital, sub-division of shares into shares of smaller amount and cancellation of shares, conversion of paid-up shares into stock);
iii. appointment and removal of auditors.
The passing of a special resolution requires at least 75% of the voting (of shareholders having the right to attend and vote) is required for the approval of the following:
i. amendment of the company’s objects;
ii. amendment of the company’s articles of association;
iii. amendment of the company’s memorandum (subject to court approval);
iv. change of the company’s name;
v. reduction of issued capital (subject to court approval);
vi. winding up;
vii. altering class rights.
The company’s articles of association may stipulate a greater voting threshold, or reserved matters beyond those prescribed by law that would also require shareholder approval apart from the removal of a director which cannot require a greater voting requirement.
VI. ACCESS TO DOCUMENTS AND INFORMATION
Shareholders are entitled to inspect the company’s register of members, free of charge, and to request a copy of that register at any time.
Additionally, shareholders have the right to inspect the register of directors and officers, bonds, debentures, charges, mortgages or encumbrances.
Shareholders have the right to inspect the minute books at any time, free of charge, and to request copies of any such decisions.
VII. VIRTUAL MEETINGS AND ELECTRONIC VOTES
Unless expressly prohibited or restricted by the company’s articles of association, a general meeting can be held by electronic means.
Members of listed companies may participate and vote in a general meeting by electronic means. As regards private companies, unless prohibited by the articles of association, general meetings may be held by telephone communication or with any other form of electronic means.
VIII. SHAREHOLDER PARTICIPATION IN COMPANY MANAGEMENT
The day-to-day management of a company is carried out by the board of directors, subject to any restrictions/controls on the directors carrying out their functions in the articles of association.
Thus, the shareholders do not generally have direct influence over or participation in the management of a company unless a shareholder is also a member of the board of directors..
Shareholders may however participate in the management of a company if specific provisions contained in the company’s articles of association, and/or the construction of other shareholders’ agreements, require prior shareholder approval for certain reserved matters. In that way, shareholders have a more direct role to the management of the company.
Subject to the provisions of the company’s articles of association, a shareholder can be appointed as a director and be part of the board of directors. There are no formal qualification requirements for appointments to the position of a director of a private companypursuant to the Companies Law, Cap 113. It is to be noted however that other regulatory requirements may apply for companies that are regulated.
IX. SHAREHOLDERS’ RIGHTS TO APPOINT/REMOVE/CHALLENGE DIRECTORS
The first directors of a company are appointed by the first shareholders to the Company and then the procedure for the appointment of subsequent directors is governed by the provisions of the company’s articles of association.
Unless this power is explicitly restricted by the articles of association of the company, shareholders can appoint a director by passing an ordinary resolution. It is also common for the company’s articles of association to provide some powers to the directors to appoint other directors if a vacancy needs to be filled or an additional director needs to be appointed.
Pursuant to Companies law, Cap 113, the shareholders may remove a director prior to the expiry of their tenure of office, notwithstanding anything in the company’s articles of association or in any agreement between the shareholders and the directors, by passing an ordinary resolution.
Special notice of at least 28 days of any resolution to appoint or remove a director must be given to the company and the director. The director in question has the right to be heard at the general meeting but ultimate such a director shall be removed on the basis of the decision of the shareholders.
Shareholders have the right to challenge in courts decisions and/or actions of the directors in cases where:
i. the resolution or act concerned is illegal or outside the company’s objectives;
ii. the act concerned required a specific majority resolution of the shareholders to be secured in advance;
iii. a personal right of the shareholder has been violated by the specific act or action of the board of directors;
iv. the company’s affairs are being conducted in a manner oppressive to some of the shareholders.
X. SHAREHOLDERS’ RIGHTS TO APPOINT/REMOVE AUDITORS
The first auditors of a company may be appointed by the directors at any time before the first annual general meeting and they will remain so appointed until the Company’s first annual general meeting.
Thereafter the shareholders will at the Company’s annual general meeting will appoint appoint the auditors or confirm the reappointment of the existing auditors who will remain in office until the conclusion of the next annual general meeting.
For the removal of the auditors of a company, a special notice of at least 28 days shall be given prior to the relevant annual general meeting of the company.
XI. DISCLOSURE OF SHAREHOLDERS’ INTERESTS IN THE COMPANY
The shareholders of companies regulated in other EU markets become subject to disclosure obligations. Specifically, shareholders must notify the company, the Cyprus Securities and Exchange Commission and the Cyprus Stock Exchange (if the shares are listed on the CSE) when their shareholding reaches, exceeds, or falls under 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75%.
XII. SHAREHOLDERS’ RIGHTS TO GRANT SECURITY OVER SHARES
Shareholders are generally entitled to grant security interests over their shares, such as pledges on share certificates, assignments of rights, liens and charges. The right to pledge or offer the shares as security is subject to the provisions of the articles of association and subject.
XIII. THE RIGHT ON THE SALE OR TRANSFER OF SHARES
In the cases of private limited liability companies, the right to sell or transfer a shareholder’s shares in the Company is always subject to the right of pre-emption and the obligation to first offer them to existing shareholders pro rata before they are sold to an outsider. The articles of association of the Company will stipulate the manner in which the pre-emption rights will be exercised and on what terms the shares will be sold.
XIV. SHAREHOLDERS’ RIGHTS IN THE EVENT OF LIQUIDATION/INSOLVENCY
In the event of the Company’s insolvency,shareholders are entitled to receive the distribution of the company’s capital or assets, depending on the rights attached in their shares. Distribution to the shareholders however will be subject to the company retaining a surplus following payment of the distribution of assets in costs of the winding-up; preferential debts; floating charges and unsecured creditors.
XV. VOLUNTARY LIQUIDATION
Under the Cypriot Companies Law, shareholders may initiate a voluntary winding-up of the company. Specifically, the shareholders may, by an ordinary resolution, require that the company be wound up voluntarily if: the period prescribed for the duration of the company by its articles of association expires; oran event occurs, on the occurrence of which the articles provide that the company is to be wound up.
Alternatively, the shareholders may pass a special resolution requiring the company to be wound up voluntarily.
XVI. SHAREHOLDER ACTIVISM
Shareholder activism in the management and overall affairs of a company is not common in Cyprus.
The Applicable Companies Law, Cap 113 and the Corporate Governance Code applicable to companies listed on the Cyprus Stock Exchange are the main statutory provisions that allow (or restrict) shareholder activism. Relevant provisions are also found in other legislative acts, such as the Market Abuse Regulation (MAR) and the Market Abuse Law (MAL), as well as regulatory acts governing and regulating listed companies, such as the Transparency Requirements Law and the Take-Over Bids Law.
The means stipulated in the Companies law, Cap 113 for shareholders’ intervention ranges from requisitioning general meetings to requesting information about statutory books, records and financial statements and from appointment a removal of directors as well as to more aggressive forms of action such as the appointment of an inspector, to derivative claims and applications to the court on the “just and equitable” principle for abuse/oppression of minority rights.