Generally, the corporate vehicle chosen by promoters wishing to pursue a commercial activity is one of the three commercial partnerships regulated by the Companies Act 1995, with the limited liability company being by far the most popular choice. Certain formalities have to be adhered to in order to procure the registration of the company, such as the preparation of certain documentation, the submission thereof to the Registrar of Companies and the payment of the appropriate registration fees (the registration fee is calculated on the basis of the authorised share capital of the Company.
The Companies Act makes a distinction between two (2) types of limited liability companies: the private company and the public company, and although the formalities for the registration of these two types of companies, are very similar, there are some marked material differences. Furthermore, from a formalities viewpoint, special attention should be made to:
the residence of the subscribers to the Memorandum of Association of the company i.e. whether the subscribers are nationals of the European Economic Area (EEA) or not;
whether the subscribers are juridical persons e.g. corporate entities or private individuals;
whether the subscribers shall sign the Memorandum and Articles of Association themselves or whether they are appointing mandataries to sign on their behalf, by means of a bespoke power of attorney.
Prior to the registration of the company, it is important to ascertain that the purported activity of the company is not a licensable one, since regulated sectors such as remote gaming, banking, insurance and investment services necessitate a licence from a regulatory authority, a minimum capital adequacy threshold, as well as minimum presence requirements in terms of local presence. We strongly recommend the promoters of the company to contact one of our officers and/or provide as much detail as possible in relation to the purported trading activity in the filing of the Company Formation Form (A1 Form).
The formation formalities
Having cleared whether the purported activity is a licensable activity or otherwise, the formation of a company may be expedited through the submission of statutory documentation with the Registrar of Companies.
The memorandum of association
The first document to be submitted to the registrar of companies is the memorandum of association, which barring the exception allowed to single member companies, must be entered into and subscribed by at least two (2) persons, and a certificate of registration is issued in respect thereof.
Article 69 of the Companies Act prescribes the statutory contents to be included in the memorandum of association. The insertion of these clauses are mandatory, and the Registrar of Companies shall refuse to register the company if any provision thereof is missing.
Articles of Association
The submission of the articles of association is to an extent not necessary by the promoters, since if they are not submitted, the model articles set forth in the First Schedule to the Companies Act will apply to the company. As a general rule, these model articles shall apply, to the extent that they are excluded or modified. The Articles of Association regulate the internal procedure within the company.
In addition to the aforesaid, the memorandum or articles of association of a private company must:
restrict the right to transfer its shares
limit the number of its members to fifty (50); and
prohibit any invitation to the public to subscribe for any shares or debentures of the company.
Private exempt company
For these types of companies, the same restrictions as those set forth above for private companies will apply. Furthermore, however, private exempt companies must expressly, by insertion in the Memorandum of Association, prohibit:
any body corporate from being the holder of, or have any interest in, any shares or debentures of the company and from being a director of the company; and
prohibit the company and each of the directors from being a party to an arrangement whereby the policy of the company is capable of being determined by persons other than the directors, members or debenture holders thereof.
Single member company
As a rule of thumb, private companies should have a minimum of two (2) to a maximum of fifty (50) shareholders. By way of exception, the Companies Act, allows single member companies (also referred to as private exempt companies). Single member companies, must be default, satisfy the criteria of a private exempt company i.e. not allow corporate directors or shareholders (this prohibition allows during the duration of the company’s existence). Furthermore, it is a peculiarity at Maltese Law, that single member companies must indicate in the objects clause of its memorandum which activity of the company shall be its main trading activity, with the other indicated activities being ancillary to the main one.
Company with non-EEA resident subscribers
If the subscribers in a new company are non-EEA residents, it is necessary to insert a provision in the objects clause of its memorandum of association stating that nothing in the objects clause should be construed as enabling or empowering the company to carry on any wholesale or retail trade in Malta, to import merchandise for re-sale locally in its imported state or to deal in real estate or empowering the company to carry on the business of financial services as defined in the Banking Act, 1994, the Financial Institutions Act, 1994 and the Investments Services Act, 1994 without the requisite licence from the particular competent authority.
Opening of corporate bank account
Although the opening of a bank account for the proposed company is not a mandatory requirement, this is a practical matter, arising out of the statutory requirement of providing evidence to the Registrar of Companies that the paid up share capital has been subscribed to by the purported shareholder of the company in formation.
The depositing of the share capital is normally effected into the company in formation account of a bank. At the outset, it is important to note that the use of a local bank is not a mandatory pre-requisite and the share capital may effectively be deposited into a foreign bank account, insofar that the bank in which the deposited is effected, shall issue a bank slip or bank letter evidencing the name of the new company in formation, in clear and unequivocably mentioned therein. The bank slip or letter should also clearly evidence that the amount deposited as “share capital” is in respect of share capital.
Into this account should be deposited an amount at least equivalent to the initial paid up capital of the company. For private limited liability companies, the statutory minimum is EUR 1165 or equivalent into any other currency. For ease of reference and division however, this is typically rounded up to EUR 1200 of which just twenty percent (20%), representing EUR 240 is paid up.
Critically, however, it is vital to ensure that the amount credited to the account of the company “in formation” account be in the currency in which the share capital is stated. When the company is registered, the next step would be to render the company in formation account operational i.e. (the ability to make deposits, withdrawals and freely administer the bank account of the Company). In order to fulfill this transition, the banks will require the following documentation:
a certified copy of the memorandum and articles of association of the company and certificate of incorporation;
a signed resolution of the company resolving to appoint the bank as the Company’s banker and appointing signatories to the account in original;
certified copies of the passports of bank signatories;
a bank reference letter, or failing this a character reference on the bank signatories;
specimen signatures of the bank signatories in original; and
duly completed forms outlining the proposed activity of the company and estimated turnover.
We can assist you in expediting all bank opening forms and in the compilation of the necessary documentation leading to the opening of the bank account. Focus Business Services works with various local and foreign banks and can recommend the best suited banking solution for client in Malta, Cyprus, Switzerland, BVI etc; depending on the types of facilities and solutions requested by the client.
Evidence of paid up share capital
Very importantly, the Companies Act prescribes that the consideration for the acquisition of shares (whether on original subscription or a subsequent issue) may only consist of assets capable of economic assessment. This means that future personal services and in general any undertakings to perform work or supply services may not be given by way of consideration.
The consideration for shares originally subscribed to in the memorandum or issued subsequently by the company can therefore be either in cash or in kind, and clear evidence thereof must be furnished to the Registrar of Companies.
Where the consideration is payable in cash, the evidence is usually supplied in the form of an original bank deposit slip or bank letter (delivered with the memorandum and articles of association) showing that an amount corresponding to at least the paid up share capital has been deposited in a bank account in the name of the company “in formation”. It matters not if the amount set forth in the aforesaid bank slip or bank letter is higher than the share capital subscribed for in the memorandum of association of the company – the registrar of company would still allow the registration of the company.
However, if the amount deposited is less, even marginally, than the statutory minimum threshold or the amount set forth in the memorandum and articles of association, the registrar of companies shall refuse to register the company. Therefore it is essential to ensure that any bank charges that may result as a result of this deposit shall not diminish the value of the amount deposited by even a nominal amount.
The Companies Act places no requirements as to whether the share capital originated from the original subscribers or a third party. In fact the source of funds is from a strictly corporate perspective irrelevant (even if statutory anti-money laundering requirements regarding source of funds may be triggered off, particularly if the share capital requirements are high).
Consideration in kind
In the case of shares which to be subscribed for a consideration in kind, the Companies Act specifically requires that a report on such consideration must be drawn up before the company is registered by one or more experts who are independent of the company and approved by the Registrar. This so called Section 73 report (because of the corresponding article in the Companies Act) would be typically prepared by an independent auditor and must contain:
a description of the assets comprising the consideration;
the valuation methodology used by the export for the valuation of such asset;
whether the values arrived at by the application of these methods correspond at least to the number and nominal value, and, where applicable, to the premium on the shares to be issued for them.
This Section 73 report must, on pain of nullity, be delivered to the Registrar for registration before the company is registered. Non-cash consideration could include shareholders’ loans, share for share arrangements and real estate.
The Section 73 report constitutes in se evidence of the payment of such consideration. However, the registrar of companies reserves the right to request additional information and evidence of payment.
Powers of Attorney
In the case of an individual subscriber, the memorandum and articles of association must be signed in original by the subscriber himself. Since the subscribers are often located outside Malta, and the company may have more than one subscriber, a simple but effective method to expedite the process would be for the subscriber to nominate a mandatory, by means of a power of attorney to execute the memorandum and articles of association on his behalf. Although, the institute of mandate allows the principal to give a power of attorney to the mandatory, even verbally or implicitly, the registrar of companies rightly insists that a written power of attorney is filed together with the supporting documentation.
In the case of a corporate shareholder, the same principle applies. A copy of the power of attorney authorising a mandatory to sign on behalf of the corporate shareholder must be submitted to the Registrar prior to the registration of the company. In this case, it would be necessary to furnish evidence e.g the Memorandum and Articles or registry of directors, attesting that the person/s representing the corporate shareholder is vested with the legal representation, by virtue of his tenure as director of the company or as duly authorised by means of a bespoke resolution.
Supporting documentation for individual subscribers and directors
In the case of individual subscribers and directors, the Registrar requires a clear copy of the pages of the passport containing the holder’s details and photograph or a copy of some other official identification document. An identity card will also suffice.
Since the director and shareholders must also indicate their residential address, a copy of a utility bill or similar proof of residence would be required.
Supporting documentation for corporate subscribers or directors
Where a subscriber or director is a company or entity which is not constituted under the Laws of Malta, it is necessary to submit to the Registrar of Companies, documentary evidence showing the existence of the corporate entity and attesting the company registration number e.g. certificate of good standing, certificate or registration, extracts from the registry of companies etc;
Where the foreign corporate entity does not have a company registration number (a characteristic common in some Caribbean jurisdictions) – prior clearance should be secured from the Maltese registry of companies. This supporting documentation should be in English.
Delivery of documentation to the Registrar
Once all the documentation required for the formation of the company has been compiled, the next step is to deliver the same to the Registrar of companies to give effect to the formation of the company. The delivery of the documentation to the Registrar may be made by any subscriber to the memorandum, or by the authorized agent of any such subscriber (an executed power of attorney would suffice in this regard). Where a power of attorney is used, this instrument becomes an integral part of the Memorandum and Articles of Association and shall be integrated in the last page of the Memorandum (for the benefit of third parties).
Having submitted the documentation to the authorized desk officers of the Registry of Companies, the documentation shall be vetted to ensure compliance with the legal provisions of the Companies Act. When the Registrar is satisfied that all the documentation complies with the Companies Act, including but not limited to compliance with all the mandatory fields which must be filled in the Memorandum and Articles of Association, the minimum share capital requirements, and the consideration of shares etc;
The Registrar shall also examine the supporting documentation, to ensure that the documentation has all been submitted e.g. passport copies / bank references, certificates of incorporation etc; When the registrar is satisfied that all documentation comply with the formalities prescribed by law, then the Registrar shall formally register the memorandum and articles of association and the company is registered. Provided the documentation is complete, the formation of a company is normally expedited within 24-48hours and a unique company registration number (which is akin to a passport copy is issued within a few hours from a submission of the documentation to the Registrar). The date of registration shall be date when the documentation was first submitted to the Registrar, even if, it would be prudent, to avoid any debate regarding premature trading, that the promoters wait until the certificate of registration has been issued, prior to the commencement of any trading activities or entering into any contractual agreements by the Company.
The issuance by the Registrar of the certificate of registration is conclusive evidence that the company has come into existence, and the complete formalities precedent and incidental to its formation have been complied with and that the company is duly registered. Effectively, this means that the Company has come into existence and is authorised to commence business as from the date of registration indicated in the certificate, unless the promoters, indicate in the memorandum the date of the commencement of the company at a later date. The effect of registration is that the company comes into existence as a juridical person, with a legal personality distinct from that of its members – this separate legal personality serves to protect the subscribers from personal liability, albeit the lifting of the corporate veil, shall still be permissible under certain restrictive conditions.
Exemption from Duty on Documents and Transfers
Following the incorporation of the Company, it is necessary to deliver to a certified copy of the memorandum and articles of association, to the Commissioner of Inland Revenue, together with an application (DDT10A or DDT10B form), for an exemption from duty on documents and transfers in terms of article 47 of the Duty on Documents and Transfers Act.
The effect of this application, when the exemption is granted, is to ensure that acquisitions or disposals of marketable securities by or issued by the company will be exempt from duty and documents within the provisions of the Act. This application is filed with the Commissioner of Inland Revenue hoses in the same premises as the Registry of Companies.
There are two application forms:
The Form DDT10A; and
The Form DDT10B
The Form DDT 10A intended for use by companies operating a “foreign income account” which have the majority of their business interests outside Malta and fall within the provisions of Article 47(3)(d) of the Duty on Documents and Transfers Act.
On the other hand, the form DDT 10B is intended for use by collective investment schemes, investment services companies and international trading companies.
Following the application and acceptance of either form, a printed certificate shall be issued by the Commissioner of Inland Revenue. This certificate states that the exemption will automatically lapse, on the occurrence of any of the following:
if the company ceases to satisfy the provisions of Duty on Documents and Transfers Act under which it was issued; or
if the company has been registered as being continued in Malta in accordance with the provisions of the Continuation of Companies Regulations, 2002 but does not submit a copy of the certificate of continuation issued by the Registrar within fifteen (15) days of the issue of such certificate.
Formalities in the case of a public company
The aforesaid formalities apply to a major extent unchanged also with regard to the formation of public companies, albeit the formation of public companies entails some further requirements, which may be summarised as follows:
At the outset, the Companies Act requires that there must be annexed to the memorandum a document providing:
the total amount or an estimate of all the costs payable by the company or chargeable to it by reason of its formation up to the time it is authorised to commence business, and of all the costs relating to transactions leading to such authorisation; and
a description of any special advantage granted prior to the time the company is authorised to commence business to anyone who has taken part in the formation of the company or in transactions leading to such authorisation. Where the company is authorised to commence business at a date later than the date of its registration, the said document shall be delivered to the Registrar for registration within fourteen days from the date the company is authorised to commence business.
The purpose of such additional formalities stems from the need to subject public companies to greater scrutiny and transparency over the activities of the promoters during the formation stage of public companies. This is justifiable on the understanding that contrary to private limited liability companies, public companies carry the stake of a greater number of shareholders, who would not have the possibility of reviewing the expenditure by the company in relation to the formation or any special advantage granted to the anyone involved in the formation of the company.
Furthermore, the person identified for the post of director of such public company must either personally, or by his agent authorised in writing, execute the memorandum of association of the company unequivocally indicating his consent to act as a director or has otherwise signed and delivered to the Registrar for registration a consent in writing to act as such director.
Companies which operate in certain activities will also need to apply for and be granted a licence or authorisation under the applicable laws and regulations. Under this category, one may enlist the following: remote gaming, tourist agencies, banking, investment services, insurance, broadcasting, recruitment agencies etc; It is also worth noting that the incorporation of a company of licensed entities is very often possible after the application process has been duly filed and accepted by the regulator. One such example are companies licensed under the Investment Services Act, where the promoters need to submit draft copies of the Memorandum and Articles of Association of the Company to the regulator – the Malta Financial Services Authority, prior to the registration of the Company. This is necessary to prevent companies from carrying out licensable activity, until the promoters have been subject to the probity of the regulator.
Other licensable regimes, such are remote gaming, however, necessitate the registration of a company, as a pre-requisite to the application process. Likewise, companies which require a licence from the Commissioner of Police or from a trading department may incorporate the company and apply for the licence after registration.
In order to ensure that the right procedure is adhered to, we advise clients to describe as thoroughly as possible, the purported trading activities of the company, to advise whether such company is pursuing a licensable regime or otherwise.
The registration of a company shall be entertained conditional to the payment of a registration fee – payable to the registrar of companies. This registration fee is calculated on the authorized share capital of the company, and ranges from EUR 245 for a company with an authorized share capital of under EUR 1,500 to a maximum of EUR 2250 for a company with an authorized share capital in excess of EUR 2.5 million. Investment Companies with variable share capital (SICAVs) typically used as collective investment schemes are subject to a standard fee of EUR 1750.
The registration fee is also payable when the company increases its authorized share capital, subsequent to formation, in which case the promoters shall be liable to pay the difference between the registration fees at date of registration and the one at date when the resolution to increase the authorized share capital is filed with the registry of companies.
Copies of memorandum and articles of Association
Following the incorporation of a company, it is customary to request copies of the memorandum and articles of association for registration. Normally available within 48 hours from date of registration, these copies would be used for the opening of bank accounts, registration for VAT purposes and of course for distribution to the directors and shareholders of the company. As a rule of thumb, it would be advisable to have five (5) to six (6) copies to expedite the formalities that follow the incorporation of a company.
The regulatory framework governing the formation of companies is one of the highest standard and requires high quality of professionalism by practitioners to ensure that the formation of companies in Malta is carried out to the highest international standards.
Contact one of our officers to initiate the incorporation of a Maltese registered company and start reaping the full benefits of an onshore, low-tax, EU jurisdiction. Simply fill in the contact box below or contact us by email on firstname.lastname@example.org or by calling at +356 2338 1500
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