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Malta Company Law Library – Highly Informative Overview

In this section you can find comprehensive information and highly informative overview of the most salient aspects of Maltese Company law.

It is imperative, to ensure the smooth operability of a Maltese Company, that clients have a good understanding of the internal mechanism of the company.  Registering a company is, with the assistance of our highly-experienced officers, a relatively straight-forward exercise.  However, equally important is that, once the company has been incorporated, the correct corporate governance is maintained at all times.

At Focus Business Services, we believe in transperancy and in the benefit of having clients, who can, on the basis of information disclosed to them, make solid and effective decisions.  We want clients to fully understand the roles and the responsibilities that lie in having a company, and in ensuring its upkeep.  The following sections within this section is to give a thorough illustration of how companies work, with in-detail information on the roles of the officers within a company, the appointment thereof, and how the major decisions through resolutions, are implemented.  Equally important to the client are the pages relating to the most frequent changes to a company, e.g. how changes in the share capital of the company are exercised, which seek to give an overview on the protocol and the procedural aspect of  implementing such changes.

It would be reductive to seek to condense the Companies Act, and its subsidiary legislation, to this literature, and it is not the intention of Focus Business Services to achieve such aim.  The scope of this information, is to give a broad, yet highly informative overview of the most salient aspects of Maltese Company law.

For more thorough information, and bespoke advice, you are kindly requested to contact one of our officers. Contact us 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 enquiries@fbsmalta.com

We are committed to providing you with a swift solution best suited to your needs.

Malta Company Directors – Role and Duties

Role of Directors

The Companies Act seeks to establish a balancing act between allowing a series of checks and balances on the powers of directors, thereby restricting the possibility of abuse, whilst ensuring that the centralised management function, which rests directly with the directors, are not lost.

Article 136A of the Companies Act was a relatively recent development and sought to crystallise the directors – role and duties. Similarly, amendments to the Civil Code, set a number of ‘fiduciary obligations’- whereby directors would be regarded as ‘fiduciaries’. Fiduciaries, are characterised by the following characteristics:

  • owe a duty to protect the interests of another person, or
  • hold, exercise control or powers of disposition over property for the benefit of other persons, including when he is vested with ownership of such property for such purpose; or
  • receive information from another person subject to a duty of confidentiality and such person is aware or ought, in the circumstances, reasonably to have been aware, that the use of such information is intended to be restricted.

The director is due to the very function of his office, a fiduciary, as his main duty is to protect and act in the interest of the company. At the outset it is also important to establish, that albeit, a director may be appointed by any shareholder having more than 50% of the voting powers in the Company, the director owes an allegiance to the Company first, and not to the shareholder/s who may have appointed him. This is a pivotal point – as the director must always act impartially and in the best interest of the Company, and ultimately his tenure in the office of director, hinges upon, the correct carrying out of this function.

As the persons vested with the legal representation of the Company, the directors often have secondary duties. A moot point, is whether directors have a general duty towards creditors of their company. The underlying rationale is that directors must act legally and in the best interests of the company, and therefore the directors’ duties towards creditors would be subordinated towards the primary duty of preserving the advantage of their company, save of course, the general and undiminished responsibility of acting lawfully and diligently. This provision, acts as a general monitor to curtail directors from acting fraudulently against the creditors of their company. Any acts of wrongful trading, fraudulent practices, misconduct, serious mismanagement by the directors, would therefore run directly contrary to the interests of the company, since the directors would be exposing the Company to a grave risk, with potentially far-reaching consequences.

For this reason, the law provides deterrants for directors acting unlawfully, setting forth a number of personal liabilities for directors. The Income Tax Management Act, for example, sets forth that all persons involved in the running of a company (therefore the directors) must do their best to effect payment of income tax, lays down that directors and managers of every company, shall pay tax out of the property of the company but that they shall be personally liable for payment if they had in their possession any property belonging to the company, which could have been used to pay the tax then due.

Likewise, the Social Security Act, states that “where anything required to be done under the Act is to be done by a company, such thing shall also be required to be done personally by the directors and managers of such company.”

Duties of directors

As a general rule, the main duty of directors is to act honestly and in good faith in the best interests of the company, to promote its well-being, to exercise due care, diligence and skill, not to engage in self-dealing and not to misuse their powers.

The litmus test for achieving the aforesaid goals, are ones based on “common sense” i.e directors must act in good faith in what they consider to be in the interest of the company. Again, the very wording, interest of the company precludes the directors from acting in the interest of individual shareholders. Therefore, all shareholders, must irrespective of class, number of shares held etc; be treated equally.

Conflict of interest

The other basic principle is that directors must stay within the powers granted to them – in other words they cannot misuse their powers. Therefore, the directors must stay within the parameters set forth in the Memorandum and Articles of Association which may require the signature of more than one (1) director or the inclusion of reserved matters in the articles of association – whereby certain decisions would be subject to the pre-approval of the general meeting.

In order to ensure that the decisions undertaken by the directors are done in the interest of the shareholders, it is essential to ensure that the directors do not have personal interests at stake in resolving matters for and on behalf of the Company. Clearly, self-dealing would create a conflict of interest between the duties that the directors owe to the Company and their personal interest. In assessing potential conflicts of interest, the test would again be one based on sensibility. If the director recommends to use the services of a company in which he has a personal stake, this may be perceived as a conflict of interest. However, if the services acquired are objectively of high quality, and the director may use his personal standing to secure better commercial terms for the company, then this would not necessarily constitute a breach. Nevertheless, it would be strongly advisable, to circumvent any possible debate as to the intentions of the director, that the latter discloses his interest to the shareholders prior to the carrying out of such transaction.

Article 145(1) of the Companies Act requires every director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company, to declare the nature of his interest to the other directors, either at the meeting of the directors at which the question of entering into the contract is first taken into consideration, or, if the director was not at the date of that meeting interested in the contract or proposed contract, at the next meeting of the directors held after he became so interested. In default, the director shall be liable to a penalty. This article cannot be derogated upon by express changes to the Memorandum and Articles of Association to the contrary.

The duty of the director is therefore to disclose such interest. Thereinafter whether he is able to vote in favour of such resolution, is a matter that depends on the drafting of the articles of association. It is possible for directors, who have duly notified the other directors or shareholders of their interest to vote in the resolution – even if the most advisable stance would be to abstain altogether.

No Profit Rule

Directors are also bound by the “no profit” rule. The Companies Act specifically prohibits directors from:

  • making secret or personal profits from their position without the consent of the company;
  • making personal gain from confidential company information; and
  • using any property, information or opportunity of the company for their own or anyone else’s benefit.

At the outset, it must be clear that directors may take a remuneration for the office that they hold in the company, as well as any additional services rendered to the Company. What is however prohibited is that the director derives any personal profit from any transaction / asset derived from an activity of the company / owned by the company, thereby reducing the company’s benefits. The most manifest illustration of this principle would, for example, be the director making personal use of the company’s property as if it were his own to further his own personal wealth, rather than those of the company.

Misuse of information

Closely linked to the aforesaid, is the notion of misuse of information. A director cannot, in the carrying out of this office, be made privy to information, and adopts policies, to divert interest to his own personal capacity in lieu of the company. A director acting in his capacity, has to disclose any advantage to the Company first and foremost, and then irrespective of the decision, desist from using this information for his own personal gain.

In other words, directors must refrain from taking business opportunities that belong to the company. The directors have a fiduciary obligation during their tenure in office, and arguably, even after their resignation / removal from office. Therefore, a director should not engage in commercial business doing, to which he is privy, and which would be in direct / indirect competition with the company in which he holds office. And this rationale, should persist, even if the director discloses such opportunity to the board of directors and shareholders, and such decision is not acted upon by the Company.

Benefits from third parties

Article 136A(3)(d) of the Companies Act prohibits directors from obtaining benefits in connection with the exercise of their powers, except with the consent of the company in general meeting or except as permitted by the company’s memorandum or articles of association. The word “benefits” is deliberately nebulous and is to be taken to constitute all possible gains, whether pecuniary or in kind.

Non-Competition

Clearly, the director should ensure that he does not carry out any act which could run counter to the interest of the Company. The most manifest example of divided loyalties, which would be incompatible with the post of directors would be the carrying out of acts that are in direct competition with those of the company on whose board he sits.

Article 143(1) of the Companies Act, specifically states that a director “may not, in competition with the company and without the approval of the same company given at a general meeting, carry on business on his own account or on account of others, nor may he be a partner with unlimited liability in another partnership or a director of a company which is in competition with that company.”

It is worth noting that this prohibition would not subsist, if this interest is disclosed to the general meeting. The rationale of the legislator was therefore to ensure transparency at all times. It would be then, up to the shareholders, to evaluate, whether the position disclosed by the director, would be acceptable to the Company, or whether his position would be in the light of such disclosure, untenable.

Furthermore, this provision should be limited to the main or general trading activities of the company. The Memorandum and Articles of Association of Maltese companies tend to be drafted, purposely wide, to ensure the maximum flexibility possible in the operations of the company. In practice, it is customary to include ancillary provisions, aimed solely as consolidating the operational side of the company e.g. powers to open bank accounts, powers to appoint mandatories, to acquire intellectual property etc; It is maintained that no conflict would arise if the director carries out trading objects privately, or with a third party, which trading objects, would otherwise be deemed to be ancillary in nature.

It is also important to note, that it is possible for a director to hold shares in a competing company, without necessary triggering off the prohibition set forth in the aforesaid Article 143 of the Companies Act. The role of the director would still be tenable insofar that he is merely a shareholder and not on the board of directors

Article 143(1) of the Companies Act, actually allows directors to compete with the company, as long as shareholders’ have knowledge thereof and have approved it. Such consent may be limited in duration e.g. for one year, or unlimited, insofar as the director retains his office. Approval, prior to the commencement of the competing activity is essential, or if this activity has already commenced, prior to appointment of the director, then approval should be sought concurrently to appointment. Although, possible, it is however, difficult to see how a director can, in practice, reconcile concurrent posts, with the obligation of maximizing the profit of each company, that he holds an office with.

Any breach of Article 143(1) carries far-reaching consequences, as the company may, undertake an action for damages against the director, with interest, or demand payment of any profits derived in contravention of the rule.

Prohibition of loans, guarantees, provision of security and compensation for loss of office

Article 144(1)(a) of the Companies Act prescribes that it is not lawful for a company “to make a loan to any person who is its director or a director of its parent company, or to enter into any guarantee or provide any security in connection with a loan made to such a person as aforesaid by any other person”.

It is possible to derogate from the aforesaid, provided the following conditions are met:

  • when, with the approval of the company in general meeting, such loan, guarantee or security is given to provide the director with funds to meet expenditure incurred by him for the purposes of the company or for the purpose of enabling him properly to perform his duties; or
  • in the case of a money-lending company, the lending of money or the giving of guarantees in connection with loans made by other persons.

Furthermore, a company is also prohibited from making any payment to any director by way of compensation for loss of office or in connection with his retirement from office, unless particulars with respect to the proposed payment (including the amount thereof) are disclosed to members of the company and the proposal is approved by the company in general meeting.

None of the said prohibitions, set forth in Article 144 apply to private exempt companies.

Duties of care and skill

By virtue of relatively recent amendments, Article 136A(3)(a) of the Companies Act now provides that directors of a company are “obliged to exercise the degree of care, diligence and skill which would be exercised by a reasonably diligent person”.

 Therefore there are two standards of duties that are inherent in the office of director:

  • The objective test – the knowledge, skill and experience that may reasonably be expected of a person, carrying out the same functions as are carried out by, or entrusted to that director in relation to the company – in other words, the performance of the director is to be assessed in accordance to the standards that a director carrying out the same functions in a company in the same line of business, would reasonably be expected to perform; and
  • The subjective test – the knowledge, skill and experience that the director has to achieve in the carrying out of his duties – the knowledge, skill and experience which the particular director actually has. Therefore, a well qualified and experienced director is expected to perform in accordance to the standards of a similarly qualified director.

Administrative duties

Directors are also subject to a long list of administrative duties, mostly arising out of the Companies Act. Most of these duties are derogated to the company secretary. The more important of these administrative duties that would apply to directors may be summarised as follows:

  • Duties to file notices and returns
    There are a number of notices and returns that need to be filed with the Maltese registry of companies – these include the Form K (changes amongst directors and legal representation); Form T (notice of share transfer) Form T1 (notice of pledge of shares) Form T2 (notice of termination of pledge of shares); Form H (notice of allotment of shares). They are also to file an annual return once every year.
  • Changes to memorandum and articles of association
    The directors are bound to notify the Maltese registry of companies of any changes to the memorandum and articles of association. The directors are also obliged to file an updated version of the memorandum and articles of association every time that a change is made.
  • Obligations regarding accounts and accounting records
    Directors are obliged to retain proper accounting records so that the financial position of the company can be properly ascertained. As as rule, the accounting records should be kept in Malta for at least ten (10) years. Moreover, the directors are obliged to prepare a profit and loss account and a balance sheet once a year and to have these financial statements audited by the company’s auditors. The directors are then obliged to lay the financial statements before the annual general meeting for the approval of the general meeting. After the annual general meeting, the directors must file a copy of the accounts with the Malta registry of companies.
  • Registers
    The directors are obliged to keep, and regularly update, a Register of Members and a Register of Debentures.
  • Minutes of meetings
    The directors are obliged to keep minutes of general meetings and of meetings of the board of directors.

Contact one of our officers for advice regarding Directors – Role and Duties and/or 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 enquiries@fbsmalta.com or by calling at +356 2338 1500

Malta Company Name Reservation

The name of a company is a distinctive and identifying feature of the company.  The company name reservation must be officially approved by the Registrar of Companies (MFSA).

On applying to the Registrar for the approval of a name, it is recommended that two (2)  or three (3) possible names ending with the word “limited” be submitted as this may avoid unnecessary delays. Applicants should however, bear in mind that a name is not likely to be approved if:

  • it is similar to the name of an existing company (unless it is a subsidiary, affiliated or group company);
  • it is considered misleading or confusing (use of foreign words, excessive use of alphanumerical symbols);
  • it is considered offensive or undesirable;
  • it falsely implies that the company is owned by a government entity

The Registrar may refuse to register the name of a company if the designated name makes reference to a person, who is not involved in the shareholding or running of the company, and this is to avoid situations of making references to third parties, with otherwise no connection to the company.

In order to protect third parties, Article 317 of the Companies Act, makes a provision whereby directors of companies being wound up, may not be involved in new companies, having a quasi-similar name to the companies being wound up.  The rationale is an obvious one – protect third parties from any ambiguity regarding the legal standing of a company.

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 enquiries@fbsmalta.com or by calling at +356 2338 1500

We are committed to providing you with a swift solution best suited to your needs.

Malta Company Contents of The M&As (Memorandum and Articles of Association)

For a company to be registered, the following documents and information must be filed with the Registrar of Companies:

(a) The Contents of the M&As.  The Memorandum must state, among other things, the following:

  • Whether the company is a public company or a private company,
  • The name, residence and identity of each of the subscribers thereto;
  • The name of the company;
  • The registered office in Malta of the company;
  • The objects of the company, which it is advisable that they should be as wide as possible so as to enable the company to engage in any kind of business or activity, without this being “ultra vires” (beyond the powers of) the company and, therefore voided.
  • The amount of the share capital with which the company proposes to be registered (“the authorised capital”), the division thereof into shares of a fixed amount, the number of shares taken up by each of the subscribers and the amount paid up in respect of each share and where the share capital is divided into different classes of shares, the rights attaching to the shares of each class;
  • The number of directors, the name, residence and identity of the first directors, and where any of the directors is a body corporate, the name and registered office of the body corporate; A minimum of one director is required for a private company, whereas two directors are necessary for a public company. There is no maximum number of directors. Although there is no necessity to have local directors, this is advisable especially where the provisions of a double tax treaty are gong to be utilised; and it is important to show that the company is effectively managed and controlled in and from Malta (tax resident in Malta) and that all company decisions are taken in Malta.
  • The name, residence and identity of the first company secretary or secretaries; For practical reasons, it is recommended that the Secretary, or one of the Secretaries be a Malta resident. Directors can also act as Secretaries, but a sole Director cannot act as a Company Secretary, except only in the case of a “one shareholder- one director- one secretary company” when one person can indeed act in all three aforementioned capacities.
  • The period, if any, fixed for the duration of the company.

(b) The Articles of Association which generally govern the company’s internal procedures and functions. The articles contain rules governing the internal management of the company and regulating the rights of its members among themselves.

Both the Memorandum and Articles of association may be altered or added to by means of an extraordinary resolution, which normally requires a majority vote of the members holding in aggregate not less than 75% in nominal value of the shares represented and entitled to vote at the meeting or 51% or more of the shares entitled to vote at the meeting.

The Articles shall typically contain any of the following:

  • The issue of shares and variation of rights;
  • Calls on shares;
  • Transfer and Transmission of shares (pre-emption rights, tag-along and drag-along options);
  • Forfeiture and surrender of shares;
  • Conversion of shares into stock;
  • Convening of and proceedings at general meetings, including demands for a poll and voting rules;
  • Directors, including their powers and duties;
  • Appointment of directors and appointment of chairman;
  • Proceedings of directors, including voting rules and casting rules;
  • Delegation of directors’ powers to a director, managing director or committee of directors;
  • Appointment of alternate directors;
  • Reserved matters which shall be the prerogative of the general meeting;
  • Proxy forms;
  • Appointment and responsibilities of the company secretary;
  • Dividends, reserves and capitalisation of profits;
  • Indemnities to officers, agents and the auditor.

Once all the required documents have been lodged with the Registrar of Companies and the Registrar of Companies is satisfied that all the documents submitted are compliant to the Laws of Malta, a Certificate of Incorporation will be issued. Provided all the necessary documents are submitted to the Registrar of Companies, a company may be incorporated within a period of two (2) days, whereupon the company can start its corporate existence immediately.

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 enquiries@fbsmalta.com or by calling at +356 2338 1500

We are committed to providing you with a swift solution best suited to your needs.

Malta Company Resolutions

Resolutions passed by the general meeting (shareholders) are broadly divided into two (extraordinary and ordinary).
Business is resolved in a company through its two main organs – (i) the shareholders; and (ii) the board of directors.  The Companies Act prescribes two ways in which such decisions may be carried out by a Maltese Company – either at a meeting duly convened or by means of a resolution in writing.

Extraordinary resolutions

The Companies Act prescribes two (2) statutory criteria which have to be met  for a resolution to be considered as an extraordinary resolution:

(i)  it must be passed at a general meeting of which notice specifying the intention to propose the text of the resolution as an extraordinary resolution and the principal purpose thereof has been duly given; and

(ii) the resolution must have been passed by a number of members having the right to attend and vote at any such meeting holding in the aggregate not less than fifty-one percent (51%) of the nominal value of the shares conferring that right or suchother higher percentage as the memorandum or articles may prescribe.

 The following are the decisions which, according to the Companies Act, always require an extraordinary resolution:

  • any alteration to the memorandum or articles of association, except for an alteration to the registered office of the company;
  • the granting of an authorisation to the board of directors to issue shares;
  • a restriction or withdrawal of pre-emption rights;
  • the granting of an authorisation to the board of directors to withdraw or restrict pre-emption rights;
  • an authorisation for the company to acquire its own shares;
  • the cancellation of own shares acquired by the company if these are not disposed of within thirty months of their acquisition;
  • change of currency of the company’s share capital;
  • voluntary winding up;
  • winding up by the court;
  • appointment of a liquidator in a members’ voluntary winding up;
  • removal of a liquidator in a members’ voluntary winding up;
  • filling of a casual vacancy in the office of liquidator in a members’ voluntary winding up;
  • nomination of the liquidator in a creditors’ voluntary winding up;
  • exercise of certain powers of the liquidator in a members’ voluntary winding up;
  • sanctioning of an arrangement in the course of a voluntary winding up;
  • filing of a company recovery application;
  • conversion of a company;
  • amalgamation of companies;
  • division of companies

Approval of the general meeting – Ordinary company resolutions sufficient

Ordinary resolutions are those passed by member or members having the right to attend and vote holding in the aggregate more than fifty percent (50%) of the voting rights attached to shares represented and entitled to vote at the meeting, or such other higher percentage as the memorandum and articles of association may prescribe.

Examples when oridnary resolutions shall suffice include:

  • removal of directors;
  • appointment of auditors;
  • remuneration of auditors; etc

Resolutions in writing

It is possible, in lieu of convening a general meeting, for the shareholders to resolve matters by written resolution, in which case the signature of all the shareholders is necessary.  Where there is a logistic difficulty in obtaining all the signatures of shareholders on the same written document, it is possible to use separate counterparts, whereby the shareholders may each sign a copy of the resolution and each copy shall, when taken together, constitute one and the same instrument.  The effect of a duly executed resolution in writing is identical to one in which the general meeting has been duly convened and notice thereof served to all shareholders.

Board Resolutions

Contrary to shareholder’s resolutions, resolutions of the board of directors are significantly less regulated, predominantly because the effective management of the company is entrusted to the directors, as part of their core function.  The board of directors may convene board meeting at any point in time to resolve matters pertaining to the management of the company.  In lieu of this, it is possible for directors to resolve business by means of a resolution in writing signed by all the directors being entitled to receive notice of the meeting.  This resolution must be executed by all the directors for the Company.  The use of written resolutions may provide a pragamtic way to resolve many matters, even if the disadvantage is that there may not  be previous discussions amongst the directors.

Contact one of our officers for any further clarification regarding resolutions and 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 enquiries@fbsmalta.com or by calling at +356 2338 1500

We are committed to providing you with a swift solution best suited to your needs.

Malta Company Directors – Appointment & Removal

There is no definition of “director” in the Companies Act. The Companies Act merely states that a director, is “any person occupying the position of director of a company by whatever name he may be called carrying out substantially the same functions in relation to the direction of the company as those carried out by a director”.

With the exception of companies with securities listed on the Malta Stock Exchange, which only allow individuals to be directors, corporate directors may also act as directors.

Therefore, the director is not necessarily the person evidenced in the Memorandum and Articles of Association of the Company, but is effectively any person who carries out the role of director. This includes shadow directors – a person who undertakes this role shall be held liable to certain prohibitions, duties and liabilities, as if he were a director indicated in the Memorandum and Articles of Association.

Executive and non-executive directors

Although the Companies Act makes no distinction between executive and non-executive directors, there is in effect an implicit distinction.

Executive directors are those directors vested with the actual daily management of the company. These directors carry out executive functions, e.g. in the financial / marketing aspect of the business and very often have an employment contract with the company.

Conversely, directors who are not involved in the actual day-to-day management of the company and as non-executive directors, and their role would be of an advisory or supervisory nature.

Alternate directors

The articles of association often provides for the appointment of alternate directors. An alternate director is appointed by an existing director and is usually entitled, under the articles, to perform all the functions of his appointer as a director in his absence.

The appointment of alternate directors is in practice a useful development – and allows to circumvent logistical challenges when the directors may not be present to exercise their duties. The right to appoint alternate directors must be specifically catered for in the articles, and the alternate director cannot exercise powers in excess of those allowed by the directors in the Memorandum and Articles of Association. Practical issues that arise in drafting this power, is to whether the alternate director can be appointed solely for the purpose of attending board meetings or to exercise his functions vis-à-vis third parties outside board meetings.

Alternate directors, when so appointed, are subject to the same obligations of directors under general principal of laws. The role of alternate directors is in practice curtailed in the case of licensable activities – the general practice being that the appointment of alternate directors would be possible, conditional to the approval of the regulator. This is in practice a sensible insertion, as the first directors are subject to the probity of the regulator to ensure that they are ‘fit and proper’ to exercise their functions. It therefore follows, that the persons appointed as alternate directors, should have the necessary skills and expertise to also fill in this appointment.

Appointment

The first directors of the company are set forth in the original memorandum of association. The Companies Act requires the memorandum of association to state the number of the directors, the name and residence of the first directors and, where any of the directors is a body corporate, the name and registered or principal office of the body corporate”. Evidence of this by means of a passport copy or identity card has to be delivered to the Maltese registrar of companies.

Where a director is a body corporate, the name and registered or principal office of the body corporate must be indicated in the memorandum. Very importantly, the company registration number of such corporate entity have to be included therein, and evidence thereof be submitted to the registrar of companies. In practice, this scope may be achieved with a certificate of good standing, a certificate of incorporation or extracts of registry. It would also be advisable to request copies of the Memorandum and Articles of Association of the Company, to establish who are the person/s vested with the legal representation of the corporate director. This is important not only for the execution of board resolution, but also on more practical issues, such as the opening of the bank account.

Number of directors

The Memorandum must also specify the number of directors, and in practice that is achievable in two ways i.e. either by setting a fixed number e.g. three directors or a range e.g. one to six. The latter is the preferred option, and helps circumvent potentially thorny issues of when the number of directors falls below the threshold indicated in the Memorandum e.g. resignation, removal or death of the Director.

It is also possible to set a maximum limit of directors, as well as a minimum, albeit this number can never fall below the threshold set forth by the Companies Act (in the case of private companies one and in the case of public companies two).

Subsequently, it is possible to appoint directors other than first directors, and this procedure is typically set forth in the articles of association. The appointment of directors can arise at the annual general meeting of the company when all the directors retire from office, and new directors are appointed by means of a “rotation of directors”.

The appointment of directors of a public company requires additional formalities. The first directors must manifestly signal their consent to their appointment, by submitting a signed declaration to this effect. This declaration is not required where a company converts from a private to a public one.

It is important to clarify that that directors are to hold office from the annual general meeting at which they are elected until the end of the next annual general meeting. Directors are entitled to re-election by the shareholders, and insofar that they are not removed by the general meeting, there is no need to submit a notification to the Registrar of Companies by means of a Form K.

Where no such provisions are set forth in the articles of association, the normal method of appointment is by means of an ordinary resolution of the general meeting. In this case, the aforesaid Form K should be submitted to the registrar of companies, in order to render the change, effective vis-à-vis third parties. The filing of the Form K may be undertaken by the new director, even though this role is usually derogated to the company secretary. The filing of the Form K should be filed within fourteen (14) days from the change thereof. Filing, after the said fourteen days is possible, and shall be equally valid, however, monetary fines may apply.

Qualifications of Directors

The Companies Act does not set a prescribed level of expertise i.e – any minimum academic qualifications or experience. In practice, probity is ensured by means of self-assessment. As it is the shareholders who appoint the director, they should be the one who select an individual with the requisite skills and expertise to adequately manage their interests in the Company.

The performance of the director shall be evidenced in the presentation of the director’s report that must form part of the audited financial statements, and the directors must lay these audited financial statements to the scrutiny of the shareholders. This acts as a safety-valve, allowing shareholders the possibility of not re-appointing a director, whom they perceive has underperformed in the carrying out of his functions.

There are however certain requirements re: qualification requirements that apply to companies listed on the stock exchange, whereby directors, must be individuals (corporate entities expressly excluded) must be composed of persons “fit and proper” to conduct the business, as well as being honest, competent and solvent. A similar provision applies to other licensed entities in a number of regulated sectors such as banking, investment services, trusts, insurance etc; and this is a sensible provision to ensure that only individuals with sufficient skill and learning are appointed to hold the office of director.

Disqualifications

The Companies Act does however set a number of rules, whereby an individual may be disqualified from holding the office of director. Examples for disqualification include if the director:

  • is interdicted or incapacitated or is an undischarged bankrupt;
  • has been convicted of any of the crimes affecting public trust or of theft or of fraud or of knowingly receiving property obtained by theft or fraud;
  • is a minor who has not been emancipated; or
  • is subject to a disqualification order made under the Companies Act.

 Disqualification orders

An application for a disqualification order may only be filed by the Attorney General or the Registrar of Companies and the Court may make a disqualification order against any person who:

  • is found guilty of an offence under the Companies Act (other than an offence punishable only with a fine);
  • who has infringed any requirement of the Act with the consequence that the person become liable to contribute to the assets of a company or becomes personally liable for the debts of the company (such as wrongful trading or fraudulent trading); or
  • if the Court is satisfied that such person is or has been a director of a company which at any time has become insolvent and that his conduct as a director of that company makes him unfit to be involved in the management of a company.

The duration of a disqualification order may range from a minimum of one (1) to a maximum of fifteen (15) years. It must also be stated that the performance of the director is irrelevant. If the company is dissolved because of adverse trading conditions encountered by the Company, but the director has acted in a correct manner, within the parameters set forth by law, then this would not render the director subject to a disqualification order.

The effect of a disqualification order is that the person made subject to it shall not, without the leave of the court be

  •  a director or company secretary of a company;
  • a liquidator or provisional administrator of a company;
  • a special manager of the estate or business of a company; or
  • concerned in any way, whether directly or indirectly, or take part in the promotion, formation or management of a company, for a specified period beginning with the date of the order.

Any person who, while contravenes the aforesaid disqualification order, shall become guilty of an offence and be liable on conviction to a fine of not less than EUR 46,600 or imprisonment for a term not exceeding three (3) years or to both such fine and imprisonment. A register shall be kept by the Registry of Company and open to the scrutiny of any interested third party.

Sole director and company secretary

There are also statutory prohibitions that apply. With the exception of exempt companies, it is not possible for the sole director of a company to also be its company secretary. This prohibition also extends to the sole director in a body corporate, which is the sole director in a company. In other words, a company cannot have as its sole director a body corporate whose sole director is company secretary to the company.

Share qualification

It is possible to set provisions in the articles of association whereby the directors must hold a minimum name of shares in the company – a practice referred to as “directors’ share qualification” and this is justified as an incentive for the directors to have a personal stake at hand, and to dedicate all their powers to ensure the success of the company. The provision of share qualifications must be specifically catered for in the memorandum and articles of association, and the director must either:

  • sign the memorandum for a number of shares not less than his qualification; or
  • sign and deliver to the Registrar for registration an undertaking in writing to take from the company and pay for his qualification shares.

In default the director must vacate this office, if he fails to obtain his qualification within two months after his appointment, or such shorter time as may be fixed by the memorandum or articles of association.

Age

Contrary to English Law, there is no upper age limit, and directors may retain their office over and above pensionable age. The only age restriction is minimum one, which applies to minors not emancipated to trade.

Vacation of office of directors

A director holds office until his term of office expires, or he becomes disqualified from holding office, or resigns, dies or is removed. On the occurrence of any of these events, the director automatically vacates office. Strictly speaking the vacancy of the directors, is independent form the filing of the aforesaid Form K, even if the filing of the said Form K is there to give the vacancy effect vis-à-vis third parties.

The vacancy may occur in a number of manners, as follows:

Expiration of period of office

The memorandum or articles of association of a company may authorise the appointment of director for a specific period. On expiration thereof, he shall automatically cease to be a director.

Disqualification

If a director becomes disqualified by law or by the memorandum or articles of association from continuing to be a director, he automatically vacates office, without the need to submit a resignation.

Resignation

A company is free to resign from office at any point in time, and this resignation is valid and effective as from the date it is penned and notice thereof duly served. Normally, the most common way to serve notice of resignation is through the chairman or company secretary, however, equally valid ways is to tender resignation during a board or general meeting. It is possible to specify how notice thereof would be deemed to be served in the Articles of association.

Death

An obvious reason for vacancy of office is the death of the director. Directorships are personal appointment and the office of director cannot be inherited by the heirs in title of the deceased director.

Removal

A pivotal article in the Companies Act is Article 140 – whereby every company retains the power to remove any director before the expiration of his period of office by a resolution taken at a general meeting of the company and passed by a member or members having the right to attend and vote, holding in the aggregate shares entitling the holder or holders thereof to more than fifty per cent of the voting rights attached to shares represented and entitled to vote at the meeting.

The provision of Article 140 shall stand irrespective of any provision to the contrary in the Memorandum and Articles of Association and cannot be derogated upon by private agreement. The wording of Article 140 is also important, in that it links the resolution to voting rights, thereby allowing the possibility of weighted voting, to regulate the removal of directors.

When due notice is served that a member intends to move a resolution for the removal of a director in accordance with the provisions of article 140 of the Companies Act, the director concerned my be informed and the director shall be entitled to be heard on the resolution at the meeting. This is an essential pre-requisite, to the extent that a resolution in writing passed by the shareholders shall not serve to remove a director. The scope is to allow a director the possibility of making his statements, but this shall of course not deter from the final effect, that is to remove the director.

Furthermore, it is important to note that the removal of a director by the Company does not deprive the director from the right to compensation or damages that he may be entitled to in respect of the termination of his appointment as director or of any other appointment terminating with the termination of his appointment as director. This would typically refer to instances whereby the director would have a contract of service or employment with the company.

The Filing of the Form K

In the event of any change amongst the directors, the company is obliged to send to the Registrar for registration a return of such change (the Form K). This from is usually signed by the company secretary. Although it can also be signed by the directors, it cannot be signed off by the director vacating his office.

Contact one of our officers for advice regarding Directors – Appointment & Removal and/or 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 enquiries@fbsmalta.com or by calling at +356 2338 1500

Malta Company Secretary – Role and Duties

It is obligatory in terms of the Companies Act, for every company, public or private, to have a company secretary, and the company secretary is considered to be an officer of the Company.

Appointment and removal of the company secretary

The first company secretary is effectively appointed by the subscribers to the memorandum of association. Some formalities must be adhered to in this regard – namely the furnishing of the passport or identity card of the company secretary. Barring an exception which applies to investment companies with variable share capital (“SICAVs”), the company secretary must be an individual. There are no nationality restrictions for the company secretary, even though, due to the very nature of the company secretary, it would be recommendable to have a Maltese resident, a service that be provided by the officers of Focus Business Services.

Subsequent company secretaries are appointed by the directors by board resolution and a notification form is to be submitted to the Registry of Companies. Unless otherwise specified in the Articles of Association, the board of directors is the organ, entrusted to regulating the functions of the company secretary, terms and conditions of employment etc;

Likewise, the board of directors can remove the company secretary at will, without the necessity of receiving prior notifications of the proposed removal or to make representations.

Company secretary must be a physical person

With only one exception, the company secretary must be a physical person. The only exception to this rule is afforded to investment company with variable share capital and an investment company with fixed share capital (“SICAVs”) whereby the company secretary may also be a body corporate.

Similarly to directors, the Companies Act does not require a company secretary to have any academic or professional qualification. It does however require the directors to take all reasonable steps to ensure that the company secretary is someone who appears to them to have the requisite knowledge and experience to discharge the functions of company secretary.

The company secretary must have a solid understanding of company law and administration, including the contents of the memorandum and articles of association of the company, and of the division of powers between the general meeting and the board of directors, etc;

Disqualifications 

Barring private exempt company, as a general rule, a company cannot have as its company secretary its sole director. Nor can a company have as its sole director a body corporate whose sole director is company secretary to the company.

Furthermore, the Companies Act prescribes a number of grounds in which a person shall be debarred from the role of company secretary, as follows:

  • If he is interdicted or incapacitated or is an undischarged bankrupt;

  • he has been convicted of any of the crimes affecting public trust or of theft or of fraud or of knowingly receiving property obtained by theft or fraud;

  • he is a minor who has not been emancipated; or

  • he is subject to a disqualification order made under the Companies Act.

Changes to be notified to Registrar of Companies

Change involving the company secretary – e.g. removal or resignation or new appointment must be notified to the Registrar of Companies for registration a return of such change. The return (on a form referred to as the Form “K”) shall specify the date of the change, together with the name, residence and identity card / passport number of any new company secretary and shall be sent by the company within fourteen days from the date of the change. By way of clarification, the submission of the aforesaid Form K after the aforesaid fourteen (14) days, shall not bring in the nullity of the Form K, but rather that a pecuniary fine shall be applied. The Form K may be signed by any company director or even by the new company, but not by the outgoing company secretary.

Multiple Appointments

The Companies Act prescribes that a company should have a minimum of one company secretary, however it is perfectly possible to have more than one. The reasons for multiple appointments apply a degree of flexibility that would otherwise not be possible with just one company secretary. It is also possible to assign different roles to more than one company secretary e.g. one reporting to the board of directors and one which carries out the filings with the Registry of Companies.

Irrespective of their role within the company however, each company secretary is liable and responsible to fulfill the duties set forth in the Companies Act. At Focus Business Services, we fully espouse this rationale of having multiple appointments – this allows us to give a seamless delivery of service, ensuring that at least one company secretary is always available to provide this role to the Company.

Casual Vacancy

As discussed earlier it is the directors who appoint the company secretary. It therefore follows, that if a casual vacancy arises, because the company secretary is unable to act due to ill-health etc; it follows that the role shall be undertaken by an officer or a company generally authorized by the directors.

Functions of the company secretary

The role of a company secretary are mostly administrative and he is not vested with the executive, decision-making powers that are vested in the directors Typically, the function of the company secretary is to ensure the proper upkeep of registers and the filing of returns and documentation with the Registrar.

The Companies Act prescribes the documents that are to be kept by the company including a register of members, a register of debentures, and the minute book and in practice it is the company secretary who takes internal responsibility for these registers and minutes.

The register of members

The register of members includes the following:-

  • the names and addresses of the members and a statement of the shares held by each member and of the amount paid or agreed to be considered as paid on the shares of each member;

  • the date at which each person was entered in the register as a member; and

  • the date at which any person ceased to be a member.

In the case of joint ownership of shares, then they are considered for the purposes of the Companies Act, as a single member, and there is an obligation of only including the name of one person in the register of member. Where shares are held in trust for the benefit of beneficiares, the register of members, shall specify the number of shares held by the trustee on its own account, if any, and the amount of shares held under trusts or each trust if more than one.

The role of the company secretary is also requested whenever a share transfer takes place. In this event, the company secretary shall, on the application of the transferor or of the transferee, enter in the register of members the name and address of the transferee. If the company has refused to register a transfer of shares, the company secretary, should serve notice to the transferee, of such refusal, within two (2) months from the date on which the transfer was filed.

The register of members is also used, whenever shares in a company are pledged, notice thereof is to be delivered by the pledgor or pledgee to the Registrar of Companies for registration within fourteen (14) days. The pledge is not effective, unless filing thereof is given to the Registrar of companies. Notice of the pledge must be recorded in the register of members. On the termination of the pledge, notice thereof must be served to the Registrar of companies, and a corresponding annotation made to the registry of members signaling the removal of the pledge.

The register of members shall, unless express provision to the contrary is made in the memorandum or articles of association of the company, be kept at the registered office of the company. This allows shareholders to inspect the register, although it is possible, by serving publication notice in a daily newspaper, to close the register of members for a period not exceeding thirty (30) days a year.

The register of debentures

The register of debentures should record the names and addresses of the registered holders and the particular of the debentures held by them. Similarly to the pledging of shares, if debentures issued by a company have been pledged, notice of the pledge should be delivered by the pledgor or the pledgee to the Registrar for registration within fourteen days from the granting of the pledge, and notice of such pledge should be included in register of debentures.

The similarity with the register of members persists, since, barring any express stipulation to the contrary in the memorandum and articles of association, the register of debentures must be kept at the registered office of the company. These register of debentures are open to inspection by the shareholders of the company.

Minutes books

The minute books of the Company is a very important document that should unless provided for in the memorandum and articles of association, be kept at the registered office of the Company. The minute book allows the resolutions of the two organs of the company – the board of directors and the general meeting to be open to inspection. The upkeep of the minute book is usually kept by the company secretary.

Returns and filings

The Companies Act requires that a myriad of returns and documents to be prepared and filed with the Registrar of Companies. The duty of filing are incumbent on all officers of the Company, albeit some forms, such as the Claim for extension of period allowed for laying accounts by the company – (Form U) – can only be executed by the directors. Other than these exceptions however, the filing of these forms and returns, is a duty which is typically delegated to the company secretary. The returns and filings can be summarised as follows:

  • Section 73 report – Issue of shares for a consideration other than in cash;

  • Transfer to company of non-cash assets in first two years;

  • Amendments to the memorandum or articles of association;

  • Increase in issued share capital;

  • Offering of shares on a pre-emptive basis;

  • Return of allotments;

  • Acquisition by company of its own shares;

  • Redemption of preference shares;

  • Delivery of notice of transfer or transmission of shares;

  • Pledging of securities;

  • Removal of director;

  • Vacancy in representation of the company;

  • Changes amongst officers and persons vested with representation;

  • Appointment of auditor;

  • Removal of auditor;

  • Resignation of auditor;

  • Statement by person ceasing to hold office as auditor;

  • Annual Return;

  • Auditors’ report;

  • Directors’ report;

  • Compromise or arrangement;

  • Notice upon the Company ceasing and/or becoming a single member company;

  • Notice of dissolution;

  • Draft terms of merger;

  • Draft terms of division;

For a full understanding of what this documentation entail, please refer to the page entitled – Company Returns and Filings

 Certification of documents

Apart from the carrying out of the following filings, a company secretary may be requested to certify resolutions, or updated versions of the Memorandum and Articles of Association. Likewise, minutes of meeting and extracts thereof may also need to be authenticated by the company secretary. This is typically required when the company is entering into commercial decisions e.g. acquisition of assets, immovable property and very often the opening of a bank account, whereby the sanctioning of this decision at board level, may be required.

Transfers on register of members

Whenever there is a transfer of shares or debentures in a company, it is correct corporate governance to ensure that the names of the transferee and the transferor are recorded in the register of members and debentures as the case may be. This is another duty that is typically delegated to the company secretary – who should ensure that the supporting documentation is complete and that such transfer has been sanctioned by the board of directors, as compliant with the terms and provisions of the articles of association.

If the transfer of shares is not effected, because of non-adherence to any provisions set forth in the articles of association, the company secretary, should within two (2) months from the date the transfer was lodge, serve notice to the transferee outlining such refusal.

The aforesaid provisions apply mutatis mutandis also in the case of a transmission of shares causa mortis (decease of the transferor). The transmission of shares causa mortis triggers succession issues, and the compatibility of pre-emption rights with mandatory rules on succession, such as reserved portion, which may apply. In case such mandatory rules override the pre-emption rights, or for any reason whatsoever, the transmission of shares cannot be registered, the company secretary must duly inform the heirs in title or such other persons onto whom the shares devolve, of such refusal within two months after the date on which the transmission is lodged.

Issue of share certificates 

The Companies Act prescribes that a company must, within two (2) months after the allotment of any of its shares or debentures and within two (2) months after the date on which a transfer of any such shares or debentures has been registered with the company, and within one (1) month from the date on which any such shares or debentures transmitted causa mortis have been registered in the name of the person entitled to be registered as the holder thereof, to deliver the certificates of all shares, debentures or debenture stock allotted, transferred or transmitted causa mortis to the persons entitled thereto, unless the conditions of issue of the shares or debentures otherwise provide.

As a rule of thumb, it is the company secretary who is entrusted to the execution of such share certificates, although very often, these certificates are counter-signed by the directors. The company secretary shall cause the persons receiving the share certificate to attest receipt thereof, by means of a bespoke declaration. The Companies Act does not prescribe the contents of the share certificate but to adequately fulfill its purpose, this should include, at least the following:

  • the name of the company;

  • the number and class of shares represented;

  • the distinguishing numbers of the shares represented;

  • the amount paid up in respect of each share and the name and address of the registered holder;

  • number of the share certificate itself

The share certificate is an attestation to the legal ownership of the shares, even the share transfer shall not be voided if no share certificate is actually provided. Pursuant to a transfer of shares, the company secretary should request the original share certificate in respect of the said shares to be returned for cancellation. Where such share certificates are lost or are not delivered, the company secretary should make a note that the original certificate has not been returned.

Company Secretary – Role and Duties during liquidation

Once a company has been into dissolution and a liquidator appointed, all the powers of the directors and of the company secretary shall cease, bar for some residual powers. One such residual power is the one prescribed by Article 297(1) of the Companies Act, whereby the company secretary may provide an affidavit that a meeting by the liquidator has been duly served. The role of the company secretary is indeed a marginal one, and it is safe to say, that pursuant to the dissolution of the company, the company secretary is divested, almost entirely, of all powers and duties.

Company Secretary – Role and Duties vis-à-vis auditors

Auditors must be allowed right of access to the company’s accounting records and books in order to fulfill their statutory roles and responsibilities. For the better doing of the aforesaid, Article 154(1) of the Companies Act states that all officers of the company (including the company secretary) must provide the auditors with such information and explanation as required for the performance of their duties as auditors. It follows that the auditors may request statutory books, such as minutes, register of members and debentures and other records as may be kept by the company secretary.

Implicitly, the company secretary may inspect the accounting records of the company (this is a power reserved to all officers in the Company, and this is in practice requirement for the filling of allotment forms.

Company investigations

Where the Registrar, either at the request of at least two hundred (200) members or of members holding at least one-tenth (1/10) of the issued share capital of a company, or at the request of the company or following a court order, appoints one or more inspectors to investigate the affairs of a company and to report thereon, all officers (including the company secretary must:

  • produce all accounts, accounting records and documents of or relating to the company which are in their custody or power, when required to do so

  • attend before the inspectors when required to do so; and

  • give the inspectors all assistance in connection with the investigation which they are reasonably able to give.

This provision, although admittedly rare, should be observed at all times. Any officer, in default of the aforesaid provisions, faces potentially far-reaching consequences, including penal consequences.

Provision of Documents to Registrar 

Although the role of the Registrar is often confined to the registry of companies, the Companies Act (Article 418) does grant some degree of investigative power to the registrar, who may request, any accounts, accounting records or documents to be furnished to him, and to provide the necessary explanations with regard to this documentation. The company secretary is, when presented with such a request, obliged to furnish the registrar with such documentation and explanation, with pecuniary fines reserved to the company secretary, or any other officer who fails to produce such information.

Duties of the company secretary towards the board and general meetings

Although the role of the company secretary is in some ways been deemed to be peripherial and ancillary, its role is undoubtedly pivotal when it comes to the duties owed to the board of directors and the general meeting. As discussed some of the duties are set forth in the Companies Act – whereas others may be delegated to him by the company or arise in the course of company secretarial practice.

Prior to meetings taking place, the role of the company secretary may be concisely summarised as follows:-

  • ensuring that notices and agendas are dispatched within the time-limits established by law or by the articles of association;

  • ensuring that circulation of all documentation to be discussed in accordance with the agenda set forth above; and

  • Complying with all the formalities on proxies that may be rendered necessary.

The company secretary should act in close liaison with the chairman of the board of directors with regard to the convening of board meetings, annual general meetings (to be held at least once every fifteen months) and extraordinary general meetings.

Convening of General Meetings

It is customary for the articles of association to contain provisions regulating the convening of general meetings – and this is a power usually allowed to the directors. When a quorum of directors is reached, any director or any two members of the company may convene an extraordinary general meeting in the same manner, as nearly as possible, as that in which meetings may be convened by the directors.

The convening of a general meeting by the directors is obligatory, on the requisition of a member or members of the company holding at the date of the deposit of the requisition not less than one-tenth (1/10) of such of the paid up share capital of the company as at the date of the deposit carried the right of voting at general meetings of the company, to forthwith proceed to duly to convene an extraordinary general meeting of the company.

If for some reason, the directors fail to convene such meeting within twenty-one (21) days from the date of the deposit of the requisition, then the requisitionist may convene a meeting in the same manner, as nearly as possible, as that in which meetings are to be convened by the directors.

Serving of notices

The serving of notices for the convening of a meeting is, barring the aforesaid, exceptions set forth in the Companies Act, a matter usually reserved to the company secretary. In issuing notices, the company secretary must indicate clearly whether the meeting is a board meeting / an annual general meeting or an extraordinary general meeting. This shall immediately determine to whom notice must be served (notices for the annual general meeting should apart from the shareholders, be extended to the board of directors and the auditor. In the case of a general meeting, where a resolution is proposed as an extraordinary resolution, the notice should specify the intention to propose the text of the resolution as an extraordinary resolution and the principal purpose thereof, including the text of the proposed extraordinary resolutions should also be circulated. This ensures that the members are duly informed and able to put questions prior to the resolution of the matter.

The notice should also include the date and time of the meeting and venue. An agenda, outlining the points for discussion should also be circulated (this allows the board of directors or the general meeting to evaluate whether their attendance is necessary, or whether they can appoint a proxy to represent their interests). It is also customary to include a generic point on the agenda e.g. any other matters, to include any other matters with the board of directors or the general meeting may deem fit for discussion. It is perfectly possible for the board of the general meeting to consider and resolve on any issue, even if no reference to it was made in the notice or agenda, without impinging on the validity of the meeting.

The notice of a meeting of the board of directors, should be sent to the directors, whereas in the case of a general meeting, notice should be served to all members entitled to attend the meeting, to all the directors and to the auditors of the company.

It is however possible, where the agenda touches on particular aspects of the company, to extend the invitation also to individuals, other than the aforesaid members e.g. chief executives, accountants, general managers etc; Where the board of directors requires legal counsel, the legal advisors of the company may also be summoned to attend meetings. It is however possible to limit the intervention and/or interjection of such person so invited to a specific point/s on the agenda – after which such person may be invited to leave, or the meeting shall be reconvened.

The obligation of the board or of the general meeting lies in serving due notice to each director and/or member as the case may be. Attendance to the actual meeting or representation by proxy is a matter for the directors and/or member to evaluate. In any case, the Companies Act, sets a minimum threshold of time – fourteen (14) days in which notice shall be deemed to have been adequately served to the members. It is possible to derogate from such threshold, by express provision in the articles of association (by prescribing a time period over or under the aforesaid fourteen (14) days).

The company secretary must ensure compliance with the aforesaid provisions and serve due notice. A meeting not duly convened shall not have the validity at law, and may be subject to impingement by members or board of directors who have not been served due notice. However, it is possible for directors to waive such notice, or agree to a shorter notice period.

It should be noted however that a meeting of the company shall, notwithstanding that it is called by a shorter notice, be deemed to have been duly convened if it is so agreed by all the members entitled to attend and vote at such meeting. In the case of meeting of the general meeting in which extraordinary resolutions are undertaken, it is possible to shorten, but not to waive the notice period altogether – and this is implicit in the aforesaid requirement that the text with the proposed change is circulated to the members.

Notice served to shareholders would typically be served by hand or by post to any agreed address. Typically, the articles of association would provide for assumptions of duly served notice e.g. in the case of notice sent by post, service of the notice is deemed to be effected by properly addressing, prepaying and posting a letter containing the notice, and to have been effected in the case of a notice of a meeting at the expiration of forty-eight hours after the letter containing the same is posted, and in any other case at the time at which the letter would be delivered in the ordinary course of post. Likewise, a positive report message generated by a facsimile would also be deemed to constitute sufficient notice. The same analogy may be drawn in the case of a delivery / read report generated by email.

Meetings of the board of directors, as subject to laxer rules, and it is indeed customary not to set a notice period in the case of board meetings. This is in part justified due to the fact that it is inherent in the role of directors to resolve business for the company, and therefore the convening of meetings is innate to the very office of directors. Furthermore, the role of directors may require deciding on particularly pressing matters, thereby it is important to allow directors to deploy swiftly, without letting a delay jeopardize the position of the company. In this case, oral notice may be sufficient to convene a meeting of the board of directors, even if it would be advisable to have some form of written, albeit informal notice, such as an email communication (this would dispel any challenges that not all directors have been duly served notice).

Notwithstanding this, it is possible that due to an oversight, negligence or carelessness, notice fails to be served to the person entitled to receive notice. It is customary to have a safety-net for this eventuality in the articles of association, whereby the non-receipt of notice of a meeting by, any person entitled to receive notice will not invalidate the proceedings at that meeting.

Proxies

It is possible that the person receiving the notice is unable to attend the meeting at the designated time and/or venue. This logistical problem, often encountered in the case of foreign directors or shareholders, may be easily circumvented through the use of proxies. The use of proxies is essential to guarantee operability of the company at all times, to the extent that the Companies Act provides that notwithstanding anything contained in the memorandum or articles of a company, any member entitled to attend and vote at a meeting of the company or at a meeting of any class of members of the company shall be entitled to appoint another person, whether a member or not, as his proxy to attend and vote instead of him.

When such instrument is used, the company secretary should ensure that the proxy is valid i.e – it relates to the meeting convened, has been duly signed by the person to whom the proxy was addressed, and clearly sets the powers being granted to the proxy. The proxy so appointed shall have the same right as the member to speak at the meeting and to demand a poll.

A proxy is essentially a mandate and the proxy is confined to the parameters of his mandate. Although, mandate may be oral or even implicit, in the case of proxies, the regulator has reasonably requested that such instrument be in writing. In order to ensure uniformity, it is also customary to attach a model proxy with the notice and to set a time-limit for the delivery of proxies (this allows the company secretary to verify the authenticity and veracity of the proxy with the person purporting to be granting it). It is also possible to set certain formalities to the proxy e.g. require the proxy to be witnessed by an independent party, or notarized or apostilled. The proxy may be a fellow director or a fellow shareholder, in which case, the formalities may be relaxed. However, it is always advisable for the company secretary to allow a reasonable time within which to verify the veracity of the notice, directly at source.

Annual General Meeting – Circulation of annual accounts

The main point of discussion at the annual general meeting is undoubtedly the laying of the annual accounts for the approval of the general meeting. To correct procedure, is for the directors to sign to the director’s report set forth in the annual accounts and promptly authorise the company secretary to furnish notice to the shareholders. The company secretary should ensure that not less than fourteen days before the date of the annual general meeting at which the annual accounts are to be laid, a copy of the accounts be sent to:-

  • every member of the company;

  • every holder of the company’s debentures; and

  • all other persons who are entitled to receive notice of general meetings.

Nevertheless, if copies of the annual accounts are sent less than fourteen (14) days before the date of the meeting, they shall still be deemed to have been duly sent if it is so agreed by all the members entitled to attend the meeting.

Circulation of documents

Similarly to the aforesaid, it is deemed to be good secretarial practice, for the company secretary to circulate documentation relating to the decisions to be resolved during a meeting of the board of directors. In this case, it would be advisable for the company secretary to seek the confirmation from the chairman as to the documentation to be circulated. This allows directors to make an informed and educated decision, pose questions and debate, prior to the actual resolution of the matter.

Attendance at meetings

The company secretary is generally required to attend all board and general meetings of the company. He may also be requested to attend the meetings of committees of directors, such as management committee meetings or finance committee meetings. The company secretary should be wary of the provisions in the article of association in the case of non-show by the designated chairman, or in the case of delays.

Furthermore, the company secretary should be well familiar with the provisions in the articles of association of the company governing the appointment of the chairman. The articles of association usually provide that the chairman of the board of directors is to be elected by the directors who may also determine the period for which he is to hold office. However, it is possible for a person to be appointed as chairman for that particular meeting (this is also possible in the case of no show by the designated chairman). In this case, the directors present tend to appoint one of them as chairman (this may be an important consideration, particularly if the chairman is allowed a second casting voting on certain matters). Although unorthodox, there is nothing strictly incorrect in the appointment of a chairman, who is not a director. It is also possible, in the case of companies with a structured share capital, divided into various classes, for the chairman to be appointed by the directors from a particular class of shares.

It is also common for the articles of association to have a specific provision whereby the chairman of the board of directors also presides as chairman of general meetings. The articles also generally provide that if there is no such chairman, or if he is not be present within fifteen minutes after the time appointed for the holding of the meeting, or if he is unwilling to act, the directors present are to elect one of their number to be chairman of the meeting.

The company secretary should liaise closely with the chairman to ensure that from a strict procedural perspective, the conduct of the proceedings comply to the rules set forth in the Memorandum and Articles of Association.

Quorum 

The company secretary should ensure that the quorum (for the board of directors and/or members is adhered to at all times) – otherwise business resolved would be in contravention to the memorandum and articles of association and therefore illegal. The quorum is usually set forth in the articles of association – in the case of board meetings, the quorum may be fixed by the directors and unless so fixed, the model articles of association, prescribes a minimum of two (2) directors. Obviously, the aforesaid would not apply in the case of a single member company.

If the articles of association do not provide a quorum, then it would be perfectly possible for the number of directors who usually attend board meetings to constitute a quorum.

In the case of general meetings, the Companies Act provides that in so far as the articles of association do not otherwise provide, “two members personally present shall be a quorum” although it is common to provide that two members present in person or by proxy will suffice. Once again, the aforesaid provisions would not apply in the case of a single member company.

The quorum must be achieved during the commencement of the meeting, but not necessarily maintained throughout. Therefore if the quorum is lost during the currency of the meeting, this will not render the meeting null and void. Where the quorum cannot be achieved during the commencement of the meeting, it is not uncommon for the articles of association to provide that:

  • if within half an hour from the time appointed for a general meeting a quorum is not present, the meeting, if convened by the requisition of members, should be dissolved;

  • in any other case the meeting will stand adjourned to the same day in the next week, at the same time and place or to such other day and at such other time and place as the directors may determine; and

  • if at such adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the member or members present shall be a quorum.

Minutes

Apart for aiding the chairman to the correct procedure during meeting the role of the company secretary should be to adequately record the minutes of the meeting. One of the first items on an agenda is usually the approval of the minutes of the last meeting for approved without correction or approved subject to such correction as may be agreed upon during the meeting.

Once approved, the company secretary should ensure that the minutes are signed by the chairman of the meeting. It is however customary, particularly if time elapses from one meeting to another (e.g. meetings held on a quarterly basis – for the minutes to be circulated for approval shortly after the end of the meeting. Minutes, duly signed by the chairman of the meeting shall constitute evidence of the proceedings.

In order to ensure the correctness of the minutes taken, it is perfectly possible for the company secretary to interject and ask for guidance from the chairman. Following the taking of the notes, the company secretary would formalize those notes into minutes. The Companies Act does not prescribe the level of detail to be included in the minutes, leaving this to the good judgment of the company secretary. It is however not uncommon for the minutes to be highly detailed, particularly in the case of board meetings. It is possible to summarise all the debate or to minute only the decision undertaken by the board. However, it would be good secretarial practice to give a short summary of the reasoning underpinning the final decisions, record any objections, and take note of the supporting documentation that may be referred to in the meeting (which should ideally be attached to the minutes as a memento). Where there is no unanimity in the decision, the company secretary should record who voted in favour and who voted against the decision.

Voting procedures

The company secretary should also be well versed with the rules governing voting (not only the ones set forth in the articles of association) but also the mandatory provisions set forth in the Companies Act.

In the case of directors’ meetings, the articles of association often provide that questions arising at any meeting should be decided by a majority of votes and that in the case of an equality of votes, the chairman would have a second or a casting vote. In the case of general meetings a distinction must be drawn between ordinary resolutions (passed by a member or members having the right to attend and vote holding in the aggregate shares entitling the holder or holders thereof to more than fifty per cent of the voting rights attached to shares represented and entitled to vote at the meeting, or such other higher percentage as may be prescribed in the memorandum or articles of association) and extraordinary resolutions. Thresholds for extraordinary resolutions differ depending on whether the company is a public or a private company. In the case of a public company, more probity is required, and an extraordinary resolution is one which:

  • has been taken at a general meeting of which notice specifying the intention to propose the text of the resolution as an extraordinary resolution and the principal purpose thereof has been duly given, and

  • has been passed by a member or members having the right to attend and vote at the meeting holding in the aggregate not less than seventy-five per cent in nominal value of the shares represented and entitled to vote at the meeting and at least fifty-one per cent, or such other higher percentage as the memorandum or articles may prescribe, in nominal value of all the shares entitled to vote at the meeting.

If however, one of the aforesaid majorities is obtained, but not both, another meeting should be convened within thirty days to take a fresh vote on the proposed resolution. At the second meeting the resolution may be passed by a member or members having the right to attend and vote at the meeting holding in the aggregate not less than seventy-five per cent in nominal value of the shares represented and entitled to vote at the meeting. If, however, more than half in nominal value of all the shares having the right to vote at the meeting is represented at that meeting, a simple majority in nominal value of such shares so represented shall suffice.

In the case of a private company, an extraordinary resolution is one which:

  • has been taken at a general meeting of which notice specifying the intention to propose the text of the resolution as an extraordinary resolution and the principal purpose thereof has been duly given, and

  • has been passed by a number of members having the right to attend and vote at any such meeting holding in the aggregate not less than fifty-one per cent in nominal value of the shares conferring that right or such other higher percentage as may be prescribed in the memorandum or articles of association.

Votes on a proposed resolution at a general meeting are usually taken in the first place by show of hands (on which each member present has one vote irrespective of the number of shares he holds) unless a poll is (before or on the declaration of the result of the show of hands) demanded:-

  • by the chairman, or

  • by at least three members present in person or by proxy, or

  • by any member or members present in person or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting, or

  • by a member or members holding shares in the company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Unless a poll is so demanded, a declaration by the chairman that a resolution has on a show of hands been carried or carried unanimously, or by a particular majority, or lost and an entry to that effect in the book containing the minutes of the proceedings of the company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. If, however, a resolution requires a particular majority in value, the resolution will not be deemed to have been carried on a show of hands by the required majority unless there be present at that meeting, whether in person or by proxy, a number of members holding in the aggregate the required majority. The demand for a poll may be withdrawn. The general rule is that on a poll every member shall have one vote for each share of which he is the holder and votes may be given either personally or by proxy.

The Companies Act lays down statutory rules in relation to polls, which may not be derogated upon, even by provisions in the articles of association. Consequently, any provision contained in the memorandum or articles of association is void in so far as it would have the effect either:

  • of excluding the right to demand a poll at a general meeting on any question other than the election of the chairman of the meeting or the adjournment of the meeting, or

  • of making ineffective a demand for a poll on any such question which is made either (i) by not less than five (5) members having the right to vote at the meeting, or (ii) by a member or members representing not less than one-tenth (1/10) of the total voting rights of all the members having the right to vote at the meeting, or (iii) by a member or members holding shares in the company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth (1/10) of the total sum paid up on all the shares conferring that right. The drafting of the memorandum and articles of association would probably not have been the task of the company secretary and any conflict therein with the mandatory rules of the Companies Act would not therefore usually be the company secretary’s responsibility. Nevertheless, the company should be fully conversant with the rules in the Companies Act and be prepared to apply them if the provisions in the articles are in conflict therewith.

Involvement of company secretary

It is therefore evident that an intimate knowledge of the memorandum and articles of association, the Companies Act and a proper preparation for the meeting are the hallmark of correct secretarial practice. The company secretary should ensure to have a copy of the Companies Act as well as the updated copy of the memorandum and articles of association and minute book. The Company secretary must not take a passive role but intervene in the case of a breach to the articles of association, by bringing up the matter directly to the Chairman. On a purely procedural level, the company secretary plays a pivotal role, in ensuring the correct corporate governance is maintained at all times.

Following the meeting, the company secretary must ensure that all the necessary filings and returns, on matters resolved, are taken care of, without delay, as well as ensuring that the minutes are circulated and the registers of the company, duly updated.

Contact one of our officers for advice regarding company secretarial services and/or 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 enquiries@fbsmalta.com or by calling at +356 2338 1500

Malta Company Returns and Filings

Company returns and filings

The Companies Act requires that a number of returns and documents be prepared and filed with the Registrar of Companies, on a periodical basis, or upon the occurrence of a number of instances. The duty of filing are incumbent on all officers of the Company, albeit some forms, such as the Claim for extension of period allowed for laying accounts by the company – (Form U) – can only be executed by the directors. Other than these exceptions however, the filing of these forms and returns, is a duty which is typically delegated to the company secretary. The most salient returns and filings can be summarised as follows:

Section 73 report – Issue of shares for a consideration other than in cash

The issuance of shares has to be undertaken against a consideration of payment, which is either a cash payment or a consideration in kind. In the latter case, an expert’s report is to be drawn up before the shares are issued by experts independent of the company and approved by the Registrar.

The aforesaid report should contain a description of each of the assets, comprising the consideration as well as the methods of valuation which have been used and must state 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.

Crucially, the report must be delivered to the Registrar before the shares are issued, and the validity of the report is effective, not as from date of filing, but as from date of delivery to the Registrar.

The Article 73 report is also possible for the original subscription of shares – in which case the expert’s report should also precede the formation documents.

Transfer to company of non-cash assets in first two years 

Article 74 of the Companies Act prohibits a company from acquiring, within two (2) years of its authorisation to commence business, any asset belonging to a person who subscribed the company’s memorandum or who is a member of the company for a consideration which is equivalent to at least 10% of the issued capital of the company. A number of exceptions to this rule are possible, provided a number of conditions are met, which rules may be summarised as possible:

  • the asset to be received by the company, and any consideration other than cash to be given by the company, must have been valued by one or more experts who are independent of the company and approved by the Registrar;

  • a report thereon must have been made to the company during the six (6) months immediately preceding the date of the relative agreement;

  • the terms of the agreement must have been approved by ordinary resolution; and

  • not later than the giving of notice of the meeting at which the resolution is proposed, copies of the resolution and of the report shall have been circulated to the members of the company entitled to receive notice of the meeting and, if the person with whom the agreement in question is proposed to be made is not then a member of the company so entitled, to that person.

Amendments to the memorandum or articles of association 

The amendment to the memorandum and articles of association requires an extraordinary resolution, and a submission of the resolution giving effect to such change, together with an updated copy of the memorandum and articles of association are to be delivered to the Registrar of Companies, within fourteen (14) days of the date of the resolution, giving effect to such change.

The updated memorandum and articles of association shall supersede any previous versions of the memorandum and articles of association.

Increase in issued share capital 

As a rule, any increase in the issued share capital of a company, must be decided upon by an ordinary resolution of the company, unless the memorandum or articles require a higher percentage than that normally required for an ordinary resolution.

 It is not unusual however, for the general meeting to give a general mandate, by means of an ordinary resolution, for the board of directors to issue shares up to the maximum amount specified in the memorandum and articles. When such authority is granted, this mandate is valid for five (5) years, which may in turn, be further renewable for further periods of five years each.

Where such permission is not contained in the company’s memorandum or articles, the same authority may be given to the board of directors by an extraordinary resolution. In any case, a copy of such resolution, ordinary or extraordinary, must be delivered to the Registrar of companies.

Return of allotments

Whenever a company makes any allotment of shares, it is obliged, by not later than one (1) month thereafter, to deliver to the Registrar for registration a return of the allotments (on a form known as a “Form H”) stating the following grounds:

  • number and the nominal amount of the shares comprised in the allotment;

  • the names and addresses of the allottees and the amount paid and that due; and payable, on each share, whether on account of the nominal value of the share or by way of premiums.

In the case of shares allotted as fully or partly paid up for a non-cash consideration, there should also be delivered to the Registrar, documentation relative to the allotment, in support of the consideration respect of which the allotment was made, and the return of allotments should also indicate the extent to which the shares are to be treated as paid up, and the consideration for which they have been allotted.

In the case of shares in a public company offered to the public for subscription, the return of allotments should be accompanied by a declaration that the requirements of article 97 of the Companies Act have been adhered to, which must state:-

  • there has been subscribed and paid in cash the amount stated in the prospectus as the minimum amount which, in the opinion of the directors, shall be raised by the issue of share capital in order to provide for the preliminary expenses, purchase of property and working capital as specified in the prospectus, and

  • the capital is subscribed in full, whether or not in cash, or the conditions stated in the offer for allotment, where the offer is not fully subscribed, are satisfied.

Acquisition by company of its own shares

The acquisition of a company of its own shares, is only possible if a number of conditions are satisfied – one such condition is that the company must be authorised by means of an extraordinary resolution, to be delivered to the Registrar of Companies which, resolution must clearly and unequivocally establish:

  • the terms and conditions of such acquisitions and in particular the maximum number of shares to be acquired;

  • the duration of the period for which the authorisation is given and which may not exceed eighteen months; and

  • in the case of acquisition for valuable consideration, the maximum and minimum consideration.

Redemption of preference shares

Whenever preference shares are redeemed, a notice of redemption – “Form T(1)” – should be delivered by the company to the Registrar for registration within fourteen (14) days after the date of redemption.

Delivery of Notice of transfer or transmission of shares

Whenever the need arises for the transfer or for the transmission causa mortis of shares, the company, must, within fourteen (14) days after the date on which a transfer of any such shares is registered with the company, and within one month from the date on which any such shares transmitted causa mortis have been registered in the name of the person entitled to be registered as the holder thereof, deliver to the Registrar for registration a notice of the transfer or the transmission causa mortis stating the names and addresses of the transferees or the names and addresses of the persons entitled to the shares transmitted causa mortis, as the case may be.

Pledging of securities

Whenever securities in a company have been pledged, notice of the pledge should be delivered by the pledgor or the pledgee to the Registrar for registration within fourteen days from the granting of the pledge – by means of the filing of a Form T2 form.

Notice of the pledgee must also be given to the company which should record the pledge in the corresponding register of securities. On the termination of the pledge, another form (Form T(3)) should be used to give notice thereof to the Registrar, to sanction the lifting of such collateral being held over such shares.

The form should be filed within fourteen days of the termination of the pledge. The notice of the termination of the pledge should be signed by the pledgee.

Removal of director

Article 140 of the Companies Act, prescribes that a company may remove a director before the expiration of his period of office, by a resolution taken at a general meeting of the company and passed by a member or members having the right to attend and vote, holding in the aggregate shares entitling the holder or holders thereof to more than fifty per cent of the voting rights attached, to shares represented and entitled to vote at the meeting. This mechanism cannot be delegated upon, irrespective of any wording in the memorandum and articles of association and private agreement between the parties. The director shall be allowed time to make representations during the meeting advocating for his removal, and thereinafter, a Form K, is filed with the registrar of companies, signaling such removal.

Changes amongst officers and persons vested with representation

Whenever there are changes to the directors, to the company secretaries or of the persons vested with its representation, the company is obliged to send to the Registrar for registration a return of such change. The return (on a form known as a Form “K”) must include the following details:

  • the date of the change,

  • the name, residence and identity card or passport number of any new director, company secretary or person vested with the representation of the company

The form K should be filed within fourteen (14) days of the date of the change, so occasioned.

Removal of auditor

Similarly to the provisions regulating removal of directors, a company may remove the auditor from office by a resolution taken at a general meeting of the company and passed by a member or members having the right to attend and vote, holding in the aggregate shares entitling the holder or holders thereof to more than fifty per cent of the voting rights attached to shares represented and entitled to vote at the meeting, and such power may not be delegated upon by any contrary provision to the memorandum and articles of association. Notice of such removal, must be provided to the Registrar of Companies.

Likewise, if the auditor is not removed, but merely resigns his office, the company should serve notice of such resignation to the registrar of companies within fourteen days of the deposit of the notice of resignation.

Annual Return 

As part of its corporate governance, the company is obliged to file with the Registrar on a yearly basis, its annual return, in the format set forth in the Seventh Schedule to the Companies Act, should show the matters specified therein and should be made up to the date of the anniversary of the company’s registration.

The annual return, duly completed, must be signed by any one director or by the company secretary and should be forwarded to the Registrar for registration within forty-two (42) days after the date to which it is made up.

Single member company 

Companies, of their very nature, imply a plurality of subscribers. However, Article 212(1) of the Companies Act allows for the provision of ‘single member companies’, conditional to the satisfaction of statutory conditions.

However, it may be possible for a company to become a single member company through the acquisition of all the shares in the company, or transmission of shares causa mortis.

Upon this eventuality, the company shall, within fourteen (14) days, deliver to the Registrar a notice – called Form I – whereby notice is given that the company has become a single member company, stating the name and residence of that single member and confirming adherence to the provisions of article 212(1) of the Companies Act.

When a company ceases to be a single member company, it is obliged, within fourteen days, to deliver to the Registrar for registration a notice specifying the fact that it is no longer a single member company.

Notice of dissolution

If a resolution for the dissolution and consequential voluntary winding up of a company has been passed, the company must, within fourteen days after the date of the dissolution, deliver a notice of the resolution to the Registrar for registration.

This notice may, until such time as a liquidator is appointed, be signed by company secretary or other officer of the company.

Terms of merger

The draft terms of merger drawn up by the directors of the acquiring company and of each of the companies being acquired need to be signed by at least one director and by the company secretary of each of the amalgamating companies. The draft terms of merger should be forwarded to the Registrar for registration.

Terms of division

The draft terms of division for each of the companies involved in a division should be signed by at least one director and the company secretary of each of the companies involved in the division. The same person cannot sign both as a director and a company secretary. The draft terms of division should be forwarded to the Registrar by each company for registration.

For more thorough information about company returns and filings , and bespoke advice, regarding the correct corporate governance, you are kindly requested to contact one of our officers. Contact us 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 enquiries@fbsmalta.com

Malta Company Registered Office Requirements

Article 69 of the Companies Act, Chapter 386 of the Laws of Malta, sets out the mandatory contents to be included in the Memorandum and Articles of Association of the Company.   One such mandatory ground is the insertion of the registered office clause.

The registered office clause of a Maltese company must be in Malta and it delineates the place where all communications and notices are to be served.  It is important to note that the registered office need not necessarily be the principal place of business of the company – it is possible for the company to carry on a substantial or all of its business in a totally different premises.  Furthermore, there is no statutory obligation for the meetings of the board of directors or of the general meeting to be carried out from the registered office of the Company. However, notwithstanding the aforesaid, the registered office is still of central importance as it is the place where all written pleadings (such as service of judicial acts) will be deemed to  have been served against the Company.

Furthermore, the registered office clause has important income tax considerations.  With the registered office of every Maltese company having to be in Malta, this determines its nationality and domicile, and insofar that the effective management and control is retained in Malta, then the Maltese Company shall also be subject, from an income tax perspective, to the Laws of Malta.

The Companies Act prescribes that a Maltese company should retain statutory registers and books, and as a general rule, these should be kept at the registered office of the Company.  The registers and books which must be kept at the registered office of the company are:

  • the register of members;
  • the register of debentures, if any;
  • the books containing the minutes of the proceedings of general meetings; and
  • the accounting records

It should be however stated that the accounting records may also be kept at any such other place as the directors deem fit.  If the accounting records are kept in a place outside Malta, there must be sent to, and kept at a place in Malta, whereby the accounting records will disclose with reasonable accuracy the financial position of the company at intervals not exceeding six (6) months, so to enable the company’s balance sheet and its profit and loss account to be be prepared in accordance with the provisions of the Companies Act

Interesting, Article 6(1) of the Companies Act, obliges the Maltese Company  to state its registered office (along with its name and registration number) in all its business letters and order forms.  The intention of the legislator is to afford third parties as much visibility as to where written pleadings may be filed with and/or against the company.

The registered office clause has also a pecularity.  It is the only alteration to the memorandum of association which may be effected by resolution of the directors – all other alterations require an extraordinary resolution of the members.  When the directors elect to change the registered office clause, they have to submit a bespoke notification form – Form Q to the registrar of companies, within fourteen (14) days from such change.

Focus Business Services can provide you with the registered address in one of the most prestigious areas in Malta, complete with virtual office facilities.  Alternatively, if client so desires, Focus Business Services can introduce clients to local property agents and assist clients in finding suitable office premises best suited for their needs.

For more thorough information, and bespoke advice, you are kindly requested to contact one of our officers. Contact us 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 enquiries@fbsmalta.com

We are committed to providing you with a swift solution best suited to your needs.

Malta Company Share Capital (Authorised and Issued)

Share Capital

Maltese registered companies must have a minimum authorized and a minimum issued company share capital. Different rules apply, depending on whether:

  • The company is a private or a public company; or

  • The trading activities of the company (licensable companies e.g. gaming companies, insurance companies, companies licensed under the Investment Services Act, Financial Institutions Act, must satisfy certain share capital requirements).

Article 72 of the Companies Act prescribes that a private company is required to have a minimum authorised share capital of EUR 1165 (often rounded up to EUR 1200) whereas a public company must have an authorised share capital of approximately EUR 44,600.

When the authorised share capital is equal to the minimum it shall be fully subscribed in the memorandum, effectively meaning that at least EUR 1165 in the case of a private company and EUR 46,600 in the case of a public company must be fully subscribed (albeit the actual paid up issued share capital need not be).

In fact, Article 72(3) prescribes that in the case of a private company, not less than twenty percent (20%) of the nominal value of each share must be paid up, whereas the thresholds for public companies is set at twenty-five percent (25%). Effectively, this means, that a company with an authorised share capital of EUR 1,200 must have an issued share capital of at least EUR 1165 (statutory minimum) or which at least 20% must be fully paid up.

Very importantly, a member’s liability is limited to the amount, if any, unpaid on the shares held by him, unless express exception to this rule is undertaken in writing. This is a fundamental precept – deeply entrenched to the notion of limited liability and effectively protects, the shareholders, bar statutory exceptions where the corporate veil may be lifted, and personal liability extended beyond the amount, if any, unpaid on the shares.

The nominal value of the share can be set at any denomination desired by the subscribers – it can be one Euro each (EUR 1.00) or one Euro cent (EUR 0.01) depending on the wishes of the subscribers. A notable exception to this is afforded by investment companies with variable share capital (“SICAVs”) whose shares have no par value. SICAVs are used as vehicles for collective investment schemes, and are intended to offer the possibility to subscribers to acquire and redeem shares (often referred to as units) swiftly. The share capital of a SICAV has no nominal value and therefore the value varies continuously to reflect the variations in the net asset value of the company pursuant to the acquisition or redemptions of the shares or of the underlying assets of the collective investment scheme.

Currency of the share Capital

The currency of the share capital may be denominated in any convertible currency. It is possible by extraordinary resolution to change the share capital of the company, however, it is not possible to have the share capital in more than one currency concurrently, since every company is obliged to draw up accounts in the same currency as its share capital.

Evidence of paid up share capital

The Companies Act provides 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. 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 (but not future personal services or undertakings to perform work or supply services).

The Registrar of Companies will not register the company unless he receives evidence that the paid up share capital of the company as specified in the memorandum of association has indeed been paid up. The form of the evidence to be furnished depends on whether the consideration for the shares is in cash or in kind.

Evidence of consideration of share capital

Where the share capital is paid in cash, evidence thereof, in the form of a bank deposit slip or of a bank letter attesting to the deposit of the share capital shall suffice. There is strictly speaking no necessity of depositing the share capital into a Maltese bank, albeit this tends to facilitate the process. Share capital deposited in a foreign bank would be equally acceptable, insofar that the bank slip or letter clearly states the name of the company in formation and that such consideration is being paid by way of share capital.

In the case of a non-cash consideration, such as share-for-share consideration, assets of a tangible nature, assignment of debts etc; more complex rules apply. A consideration is kind shall be acceptable by the registrar of companies, only insofar that the true value of such consideration is sanctioned by an expert’s report, clearly stating the valuation methodology and the value of the non-cash consideration. This expert’s report (so called Section 73 because of the enabling provision of the Companies Act, must be presented to the registrar of companies, concurrently with the memorandum and articles of association and supporting documentation for the incorporation of the company. Whenever the issued share capital is to be increased, the allotment of shares, is only permissible if preceded by the aforesaid expert’s report.

Increase in authorised share capital 

The increase in the authorised share capital necessitates the alteration to the memorandum and articles of association of the company, and therefore may only be undertaken by means of an extraordinary resolution by the shareholders, together with the submission of a revised memorandum and articles of association reflecting the new authorised share capital. The registrar of companies shall only register such alteration, if the updated memorandum and articles of association is duly complied in accordance to the laws of Malta, and upon the payment of the appropriate fee for registration.

Increase in issued share capital

The increase in the issued share capital of the company is normally undertaken by means of an ordinary resolution, although it is possible for the shareholder to delegate such authority to the board of directors by means of an ordinary resolution – in which case such authorisation shall be valid for a period of five (5) years, renewable for further periods of five (5) years.

The increase in the issued share capital follows rules similar to the ones prescribed for the original subscription of shares. The consideration, if in cash, must be evidenced in the form of a bank slip or bank letter, attesting that the consideration is for an increase to the share capital. In the case of non-cash consideration, an experts’ report is possible.

Reduction in issued share capital

Conversely to the aforesaid, it is possible for a company to reduce its issued share capital, a decision that may adversely affect its creditors and members. The reason for this reduction may be various e.g the existing level of share capital is excessive or pursuant to losses undertaken by the Company. In any case, strict procedure to the Companies Act, particularly Article 83 must be adhered to.

The reduction in the issued share capital is only possible by means of an extraordinary resolution, and requires the amendment to the memorandum and articles of association. Furthermore, such reduction shall not be rendered effective, until notice thereof has been duly provided to the general public (and implicitly any interested creditors). The reduction is effective as from three (3) months from publication of the notice of such reduction. Provided however, that no publication shall be necessary, if the reduction is undertaken for the setting off of trading losses. It is strongly advisable, that any resolution to the effect of reducing the share capital on the basis of setting off of financial losses, should be sanctioned by means of management accounts drawn on or close to the date of such resolution.

For more thorough information, and bespoke advice, you are kindly requested to contact one of our officers. Contact us 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 enquiries@fbsmalta.com

Malta Company – Shares Issued at a Premium

It is customary for the original subscribers of the shares to subscribe for the shares at a nominal or at par value (the consideration being paid in cash on in kind).  There in after however, it is not usual for shares to be allotted for a consideration higher than their par value – “at a premium”.  The reason for this may be various, but the typical scenario would be that the company has started trading and the market value of its shares, by far exceed the nominal value of the share.  By way of illustration, if the nominal value of the shares in the Company is EUR 1.00 but the true market value of each share is, regard being had to the value of the assets owned by the company, EUR 20, then the allotment of shares would still be at a nominal value of EUR 1.00 but issued at a premium of EUR 19 – representing the difference between the true market share and the nominal value of the share. The issuance of shares at a premium, may therefore be held to address an imbalance in the true value of the shares, which would otherwise be to the detriment of the original subscribers of the shares.
Article 114 of the Companies Act prescribes that when shares are issued at a premium (whether for cash or otherwise), a sum equal to the aggregate amount or value of the premiums on those shares is to be immediately paid up in full and transferred to the “share premium account”.  An exception to this rule is set forth by Article 114A of the Companies Act, based on group reconstruction relief.   This relief is however to be interpreted very restrictive in nature and only applies where the issuing company:

  • is a qualifying subsidiary of another company; and
  • allots shares either to the holding company or to another qualifying subsidiary of the holding company, in consideration for the transfer of the issuing company of non-cash assets of a company that is a member of the group of companies that comprises the holding company and all its qualifying subsidiaries.

In these circumstances, the issuing company is not required to transfer to a share premium account, any account in excess to the minimum presence value (the amount, if any, by which the base value for the consideration for the shares allotted exceeds the nominal value of the shares).

Another exception to the transfer of funds to the share premium account, is set forth by Article 114B of the Companies Act – takeover relief.  This applies when one company acquires the share capital of another company by issuing shares to the shareholder of the target company, provided that the following conditions are complied with:

  • the issuing company must secure at least an eighty per cent (80%) equity holding in another company; and
  • this holding must be secured pursuant to an arrangement providing for the allotment of equity securities in the issuing company on terms that the consideration for the allotted shares is to be provided either by the issue or transfer to the issuing company of equity securities in the other company or by the cancellation of any such shares not held by the issuing company.

The use of a share premium account also has the effect of restricting the registration fees payable to the Registrar of Companies.  As the registration fees are calculated on the authorized share capital, shares issued at premium, in lieu of their nominal value, make it possible not to increase the authorized share capital.  Likewise, since the fees for the filing of the annual return of the company, are calculated proportionate to the authorized share capital of the company, there may only be a recurring monetary saving to be made.

This notwithstanding, the creation of a share premium account is not a matter to be taken lightly and certainly should not be dictated solely by any monetary savings that may apply through the use of this account.  Restrictions apply on the permitted use of the share premium account, as follows:

  • The share premium account may be applied by the company in paying up unissued shares of the company to be issued to its members as fully paid bonus shares;
  • The share premium account may be applied by the company in writing off its preliminary expenses or the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company;
  • The share premium account may also be used to providing for the premium payable on redemption of any of its redeemable preference shares or debentures.

It is also to be noted that there is no strict statutory obligation to issue shares at a premium when a premium may be obtained.  However, directors who short-sell the allotment of new shares, by not requesting subscribers to pay to the company the full price for the new allotment of shares, would be liable to compensate the company in damages for the premium.

For more thorough information about Malta Company – Shares Issued at a Premium, and bespoke advice, you are kindly requested to contact one of our officers. Contact us 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 enquiries@fbsmalta.com

Malta Company – Offer of Securities to the Public – Detailed Overview

Article 2(3)(a) of the Companies Act, Chapter 386 of the Laws of Malta defines ‘offer of securities to the public’ as “a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to these securities. This definition shall also be applicable to the placing of securities through financial intermediaries.”

Having set forth the parameters, Article 2(3)(b) of the Companies Act then prescribes the criteria which would not constitute a public offering as follows:

  • an offer of securities made only to qualified investors ; or
  • an offer made to less than one hundred persons per Member State or EEA State, not including qualified investors; or
  • an offer where the minimum consideration which may be paid by any person for securities acquired pursuant to the offer is at least EUR 50,000.00, for each separate offer; or
  • an offer of securities where the nominal value of each security amounts to at least EUR 50,000.00, or the total consideration of which shall not exceed EUR100,000.00, which limit shall be calculated over a period of twelve months; or
  • an offer where the total consideration of the securities offered does not exceed EU 2,500,000.00, which limit shall be calculated over a period of twelve months; or
  • an offer in respect of non-equity securities issued in a continuous or repeated manner (i.e. issues on an ‘as required’ basis (on tap) or at least two separate issues of securities of a similar type and/or class over a period of twelve months) by credit institutions where the total consideration of the offer over a period of twelve months is less than EUR50,000,000.00, provided that these securities (i) are not subordinated, convertible or exchangeable; and (ii)  do not give a right to subscribe to or acquire other types of securities and they are not linked to a derivative instrument.

Very importantly, the aforesaid grounds are, listed in the Prospectus Directives, as instances which amount to an exemption from the requirement to publish a prospectus in the case of an offer of the relevant securities to the public.  However, if admission of those securities to trading on a regulated market situated or operating within the territory of a Member State (such as the Malta Stock Exchange in the case of Malta) is sought, those exemptions would seem not to be applicable and the publication of the prospectus would still be required.

Qualified Investors

The term ‘qualified investors’ would include any of the following:

  • legal entities which are authorised or regulated to operate in financial markets, including: credit institutions, investment firms, other authorised or regulated financial institutions, insurance companies, collective investment schemes and their management companies, pension funds and their management companies, commodity dealers, as well as entities not so authorised or regulated whose corporate purpose is solely to invest in securities;
  • national and regional governments, central banks, international and supranational institutions such as the International Monetary Fund, the European Central Bank, the European Investment Bank and other similar international organisations;
  • other legal entities which do not meet two of the three criteria set out in the definition of “small and medium-sized enterprises” in the Companies Act 2;
  • subject to mutual recognition, small and medium-sized enterprises which are registered in Malta and which expressly ask to be considered as qualified investors;
  • subject to mutual recognition, natural persons who are resident in Malta and who expressly ask to be considered as qualified investors if these persons meet at least two (2)of the criteria set out below:

(i) the investor has carried out financial transactions of a significant size on securities markets at an average frequency of, at least, ten per quarter over the previous four quarters;

(ii) the size of the investor’s securities portfolio exceeds EUR 500,000.00;

(iii) the investor works or has worked for at least one year in the financial sector in a professional position which requires knowledge of securities investment.

For more thorough information, and bespoke advice, you are kindly requested to contact one of our officers. Contact us 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 enquiries@fbsmalta.com

Malta Company – Annual General Meeting

Article 128 of the Companies Act prescribes that every company must hold the annual general meeting in addition to other meetings of that year. The company annual general meeting must be held during a calendar year (not on the date of anniversary of the company). The first annual general meeting must be held by not later than eighteen (18) months from the date of incorporation of the company, and not more than fifteen (15) months should elapse for successive annual general meetings.

The annual general meeting is convened by the directors of the company (who delegate the obligation to circulate notices thereof to the company secretary).  However, in default, it is possible for the shareholders of the company to convene such annual general meeting themselves.  The business typically transacted in an annual general meeting includes the following:

  • declaration of dividends;
  • consideration of the annual accounts and the reports of the directors and auditor;
  • the election of directors;
  • the determination of remuneration payable to the auditors; etc

There are no limitation nor restrictions on the type of business which may be transacted at the annual general meeting, although it is undeniable that the main scope is the approval of the annual accounts and the election of directors.  The circulation of annual returns is a task usually delegated to the company secretary and should be circulated to all persons entitled to receive notices of general meetings – i.e.  the shareholders, the directors and the auditors.  The Companies Act, through its model articles, prescribes a minimum notice period of fourteen (14) days, although it is possible to derogate from such notice period through specific amendments in the Memorandum and Articles of Association, or if so agreed by all the members entitled to attend the meeting who received late notice.

The directors hold office from one annual general meeting to another, and the convening of the annual general meeting allows shareholders to have a direct rendition of the performance of the company.  The directors’ report and the auditors’ report shall be presented to the shareholders, in order to assess whether the company has attained its financial targets.  The directors and the auditor shall answer the questions of the shareholders, who may then elect to re-appoint them or to remove them as directors and auditors of the company.  If the directors are re-elected, there is no need to file a notification form to the Maltese Registrar of Companies – however, this shall be necessary is the company is not re-elected.

The shareholders may appoint proxies to represent their interest in the annual general meeting, and the proxy may not necessarily be other shareholders.  The minutes of the annual general meeting should be kept by the company secretary and then held at the registered address of the company, unless provision to the contrary is included in the Memorandum and Articles of Association of the Company.  The convening of annual general meeting is a mandatory requirement and any default thereof shall constitute a breach in terms of the Companies Act – with pecuniary penalties being inflicted on the company and its directors for every day in default.

For more thorough information, and bespoke advice, you are kindly requested to contact one of our officers. Contact us 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 enquiries@fbsmalta.com

Distribution of Dividends in a Malta Company

The shareholders of a company expect to reap regular financial benefits from their investment in the Company, and one of the roles of the directors is to ensure the maximisation of profits.  The profits shall then be remitted to the shareholders in the form of dividends.  Article 192(1) of the Companies Act prescibes that a company must not make a distribution except out of the profits available for distribution.  Distribution may be in a number of manners, notably the following:

  • Company assets, whether in cash or otherwise;
  • The redemption and purchase of any of the company’s own shares out of capital, including the proceeds of any fresh issue of shares out of the undistributable reserves of the company;
  • The reduction of the issued share capital by extinguishing and reducing  the liability of any of the members on any of the company’s shares in respect of issued share capital not paid up, or by paying off paid up issued share capital; and
  • a distribution of assets to members of the company on its winding up.

It follows that the only profits available for distribution are the company’s accumulated, realised profits, so far as they are not previously utilised by distribution or capitalisation, less any accumulated, realised losses.  However, although the company may have accumulated, realised profits, it is under no obligation to distribute all of its profits to its shareholders.  It is in fact customary to allow the accumulation of funds in a reserve, and this is to allow the company margin for investment, new expenditure and a contingency for penalties and fines which may accrue.  The size and proportion of this reserves may be set forth in the Companies Act.  However, it is typically left at the discretion of the directors, since they are the persons entrusted to the day to day management of the company, and with the taking of financial decisions.

Divdends are, barring any provision to the contrary that may be included in the Memorandum and Articles of Association of the Company, be payable only if and when an authorised organ of the company declares them to be so.  It is common for the articles to provdie that the dividends are to be declared by a resolution passed at a general meeting but that no dividends shall exceed the amount recommended by the directors.  It is however not uncommon for the directors to be given the power to declare dividends as well, or to the exclusion, of the general meeting.  If there is no express provison in the Memorandum and Articles of Association, then the presumption shall be that such power shall lie with the directors of the company.

Dividends are usually declared at the company’s annual general meeting or by way of interim dividends.  The payment of dividends has an intrinsic connection with the tax refund that apply to a Maltese company.  The Maltese tax system is a credit imputation one, whereby the company pays a corproate tax rate of thirty-five percent (35%), but the shareholders shall be entitled to a number of tax refunds.  This makes Maltese companies particularly tax efficient tax vehicles, ensuring that the ultimate tax leakage on active trading income is of five percent (5%) or less.  The aforesaid tax refund is only possible for final distribution of dividends (in other words not possible for interim dividends).

This distinction is of major importance, and the cornerstone of the Maltese tax treatment.  Another significant distinction between final and interim dividends is that when a final dividend is declared, it is irrevocable and becomes a debt payable due by the Company to the shareholders.  Interim dividends on the other hands may be rescinded, varied or revoked any time before such dividend is paid.  It is important, whenever interim dividends are declared, that the company always retains a contigency for tax liabilities, as this taxation shall be payable by the company at the end of the accounting reference period.  The directors should ensure that this contingency is generous enough to include any foreseeable tax liabilities and any forseeable costs that may be undertaken by the company.

Dividends are generally payable to the persons who are registered in the registry of members  or who are the bearers of its share warrants, on the date when the dividend is declared, unless provision to the contrary is set forth in the articles of association. The payment in respect of shares registered in the registry of members is effected to the person so registered on the date when the dividend is declared.  Because of the aforesaid tax imputation, it is important to register the shareholder of the Maltese Company also with the Maltese tax authorities and to furnish evidence of such approval and amount of dividends (through dividend warrants) in order for the shareholders to be entitlted to a tax refund.

The distribution of dividends is therefore a matter of considerable scope and gravity with corporate and fiscal consequences.  Article 204 of the Companies Act prescribes that if a distribution is effected at a time when the company has insufficient profits, any shareholder who had knowledge of the precarity of the financial situation of the company, or who ought to have knowledge thereof, then he is liable to repay the distribution received to the company.  Furthermore, if distribution was made for matters otherwise than in cash, such member would be liable to pay the company a sum equal to the value of the distribution, at that time.  This principle is enforced by the need of the company to have capital maintenance, and to protect the interest of creditors, who may otherwise have their credit jeopardised by such wrongful distribution.

Contact one of our officers for any advice regarding tax structuring and distribution of dividends 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 enquiries@fbsmalta.com

We are committed to providing you with a swift solution best suited to your needs.

Malta Company Liquidator – Powers in a Winding up

Upon a winding up, howsoever occasioned, the powers of the directors are suspended and these are undertaken by the liquidator.  The role of liquidator powers in a winding up is a pivotal one, effectively ensuring closure of the company’s corporate existence, whilst seeking to preserve the interest of creditors and third parties.  Although the Companies Act clearly identifies the liquidator as the central figure, there are a number of secondary, but equally important figures which play an important role in the winding up of a company.

Official Receiver

Appointed by the Minister of Justice, the role of the official receiver is to act as the liquidator of companies being wound up by Court. Companies are obliged to inform the official receiver of a number of facts as soon as they are put in liquidation by a Court or law e.g. –  the statement of the company’s affairs is to be submitted to the official receiver within 21 days.

The official receiver, shall, as soon as practicable after receipt of the statement, submit a report to the Court, or carry out investigations as he may deem appropriate and submit a preliminary report to the court (regarding assets and liabilities, causes for failure of the company, and whether in his opinion there has been fraud committed by any person) or similar wrongdoing.

Provisional Administrator

The need to appoint a provisional administrator may arise where there is a lenghty period between the filing of a winding up application and the handing down of a winding up order.  In this interim period, when a liquidator would not yet have been appointed, the Court may deem it expedient to appoint a provisional administrator not only to ensure swift handling of the winding up, but to preserve the interests of third parties, especially since the role of the directors is effectively marginalised upon a winding up.

The provisional administrator as the name implies is a stop-gap function i.e. undertaken within the parameters set forth by the Court, and shall only hold office until a winding up order is given (when a liquidator is appointed) or until the winding up application is dismissed.

Liquidator

By far the central figure in a winding up, the role of the liquidator is a pivotal one.  The liquidator, may as set forth above, be appointed by the Court, by the creditors or by the shareholders of the company.  In carrying out his duties, the liquidator is usually granted the power to carry out a wide number of powers, all of which stem from the corresponding Article 238 of the Companies.  The most salient powers allowed to the liquidator are as follows:-

  • to carry on the business of the company so far as may be necessary for the beneficial winding up thereof;
  • to pay creditors according to their ranking at law;
  • to make any compromise or arrangement with creditors, and to refer any such matter to arbitration;
  • to represent the company in all matters and to do all such things as may be necessary for winding up the affairs of the company and distributing its assets:

Special powers may be afforded to the liquidator, especially in the case of a winding up by the court, whereby, the liquidator, shall in addition to the powers set forth above, also have the power:-

  • to sell the movable and immovable property,
  • to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts and other documents;
  • to raise on the security of the assets of the company any money requisite;
  • to appoint a mandatory to act for him in his capacity as liquidator for particular purposes.

Custody and control of  the property of the Company

Article 237 of the Companies Act, gives the liquidator the power to ‘take into his custody or under his control all the property and all rights to which he has reasonable cause to believe the company to be entitled.’ – this is a central power, since effectively, the directors of the company are divested from their office, and have only a residual function in the company, mainly to liaise with the liquidator, in the carrying out of this roles and duties.

For the better doing of his function, the liquidator may summon general meetings of the creditors or contributories for the purpose of ascertaining their wishes, and it shall be his duty to summon meetings at such times as the creditors or contributories, by resolution, either at the meeting appointing the liquidator or otherwise, may direct, or whenever requested in writing to do so by one-fourth in value of the creditors or contributories, as the case may be.

Liquidation Committee

As an added safety-feature in ensuring the protection to creditors, Article 245 of the Companies Act prescribes that upon a winding up ordered by the court, the creditors, may determine whether to appoint a liquidation committee to act with the liquidator .  The role of the investment committe is to monitor the duties of the liquidator.  Composed by three (3) to five (5) individuals, the role of the liquidation committee shall be to liaise with liquidator by means of meetings held every six (6) months or such higher frequency, as the liquidator may deem adequate.  The majority of the committee must be present for a meeting ot have been duly convened, and decisions shall be taken by majority voting.

A member of the committee may resign by notice in writing signed by him and delivered to the liquidator.  Where a member is vacant for five (5) consecutive meetings of the committee without the leave of those members who together with himself represent the creditors or contributories, as the case may be, his office shall thereupon become vacant.  Furthermore, the member of the committe may be removed by a resolution of a meeting of the creditors, if he represents creditors, or by a resolution of a meeting of the contributories, if he represents contributories.

Special Manager

Pursuant to the winding up application but prior to the making of a winding up order, the Court may, at its discretion, appoint a provisional administrator to manage the company. Following the winding up order, the liquidator is appointed, to carry on his function from that moment in time.   Admittedly rare, the appointment of special managers are usually appointed when the company being wound up, is engaged in a niche of highly specialised business, that involves specialised skills e.g. credit insitution or financial services.

We can assist you in all matter ancillary and/or related to a winding up process. For more thorough information, and bespoke advice, you are kindly requested to contact one of our officers.  Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com

Malta Company Prohibition of Financial Assistance

Article 110 (1)(b) of the Companies Act, Chpater 386 of the Laws of Malta, prescribes that a company may not give directly or indirectly, whether by loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of an acquisition or subscription made or to be made by any person of or for any shares in the company or its parent company.

At the outset, it is important to note that the aforesaid prohibition does not extend to transactions effected with a view to the acquisition of shares by or for the company’s employees or the employees of the group company (this is an employee fringe benefit that may apply in some companies with the intended effect to incentivising the employees into better productivity, since they have a personal stake in the company).    However, this derogation shall apply insofar that the said transaction shall not have the effect of reducing the company’s net assets below the amount of its issued share capital together with its undistributable reserves.

Another slight exception is permitted in the case of financial assistance granted to units in investment companies with fixed share capital  (INVCOs) for the purpose of or in connection with the acquisition of shares by another undertaking.  Once again though, this exemption is qualified by the need for the assistance not to have the effect of reducing the company’s net assets below the amount of its issued share capital together with its undistributable reserves.

Interestingly, the aforesaid prohibition does not apply to Shipping Companies whereby private companies regulated by the Merchant Shipping (Shipping Organisations – Private Companies) – Chapter 234 of the Laws of Malta, are afforded absolute carte blanche provided that such financial assistance may only be given after due notice thereof has been given to the Registrar of Companies – through the filing of the so called Form D.  Likewise, Article 110 (1)(b) shall not apply to securitisation vehicles – provided that such securitisation vehicle is not set up as a public company (implying therefore that a securitisation vehicle set up as a private limited liability company shall have no restrictions whatsoever).

The reason for this prohibition is to avoid a distortion of the internal shareholding of the company, but artificially allowing third parties to acquire an equity participation in the company, and thereby gain control of the company.   It would be indeed a travesty if the company in which shares are being acquired or its parent is providing a loan or guarantees to a third party for the acquisition of companies, within it.  The legislator has extended the financial assistance to “any means possible” – thereby implying that the prohibition shall remain intact, even if complex financial structures are put in place with the aim of acquiring shares within the company.  A corollary to this is the provision speaks of ‘acquisition of shares’ – which denotes a wide scope of actions from outright purchase, to exchanges, partition, donation etc;  It therefore matters not what transaction is used for this acquisition, insofar that the

However, a further dissection into Article 110(1)(b), makes it evident that the prohibition of financial assistance lies in the provision of actual help.  Mere co-operation or advice would therefore not be deemed to trigger any prohibition, albeit, the directors of the company should approach such possible co-operation with great care.

The extension of the prohibition to shares in the parent company is an interesting mention, intended to apply as wide interpretation as possible to the prohibition.  However, it should be stated that subsidiaries of companies registered in Malta are not subject to this prohibition, since the Companies Act, cannot by way of its jurisdictional scope, be extended to foreign subsidiaries.  Likewise, the prohibition would not extend to parent companies of a Maltese subsidiary, although it would be strongly advisable that clearance be sought with legal counsel in the jurisdiction where the subsidiaries or parent companies are incorporated, to exclude the applicability of a corresponding Article 110(1)(b).

If the provisions relating to financial assistance are in fact triggered then the transaction shall be deemed to be unlawful and therefore null and void.  The directors who have assisted in this financial assistance, through the provision of monetary sums or loans etc; would be deemed to have breached their duties inherent in the office of directors and therefore be held liable.

For more thorough information, and bespoke advice, please contact one of our officers. Contact us 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 enquiries@fbsmalta.com

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