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Cyprus Corporate Law

Cyprus Corporate Law

Cyprus Corporate Law

Cyprus Attorney Vasfi Sinal

If you need advice to solve your commercial and corporate problems, we are here! We can support you daily to do your business needs and to be able to complete your transactions successfully. As a multi-lingual team, our specific knowledge about the legal procedures in TRNC that are needed to do the drafting of commercial contracts, and understanding the specific legal and business requirements of a wide range of industries are well known. Moreover, our professional team can add an international perspective to the increasingly common cross-border nature to carry out many transactions and contractual matters.

Our Areas of Expertise:
Joint ventures/transfer of assets and businesses
Outsourcing
Licensing arrangements
Formation of Companies
Registering and licensing copyrights, trademarks, design rights and patents
Sinal Law Firm
Guide to Corporate Law
1. Company Incorporation process in Northern Cyprus: 
 
Foreign investors and the local businessmen are using a legal form for any kind of business action in the TRNC. The requirements that are regarding the limited companies are set out in the Companies Law, Cap. 113. 
 
To be able to establish a company, TRNC laws allow %100 foreign partnerships, but if the field of activity is property development, the majority shares (i.e. 51%) ought to be hold by TRNC citizens. For incorporation like this, 100.000 USD should be deposited as capital input of the company. This money is considered as capital of the company, and the blockage on this amount is lifted once the incorporation is finalized. 
 
The Process for incorporation is as follows: 
 
Company Name Search;
Ministry of Economy Affairs Approval;
Companies Registry Approval;
Registry to Tax Office.
 
2. The documents required for the company incorporation are:
 
 
Association and by- Laws articles (to be prepared according to TRNC Law);
M.S. 1, 2, 3 Forms (application forms prepared in accordance with TRNC Law);
Letter of Intent (letter explaining the business intention of the company);
Good character (criminal record) certificate obtained from the investor’s local “Security (Police or Court) Office” for ONLY foreign directors;
Tax-Payment guarantee certificate for foreign director(s), obtained from the TRNC local Revenue and Tax Office;
Approved photocopy of passport or identity card of the shareholders;
Certificate of the deposit of the foreign capital share at a local bank for the minimum required capital on establishment of any company with foreign participation of US$ 100,000; and
Power of Attorney (to be issued to your solicitor to follow the formalities).
 
If the shareholder of the company shall be a legal entity the following documents shall be required:
 
a) Board of directors resolution with respect to participation of the foreign company (which shall be the shareholder) in the company to be established;
b) Articles of Association and by-laws of the foreign shareholder (together with the amendments made in the Articles of Association and by-laws);
c) The updated list of the names, addresses and the nationalities together with passport and identity card photocopies of the Board members of the foreign shareholder;
d) Good character (criminal record) certificate obtained from the investor’s local “Security (Police or Court) Office” of the board members of the foreign shareholder;
e) The updated list of the shareholders and their addresses together with information on the type of the shares, nominal values and number of shares they own in the foreign shareholder company;
f) Updated version of the certificate of activity of the foreign shareholder obtained from the Trade Registry in which the company is settled ascertaining that the company is still active;
 
Please be reminded that character certificates, passport photocopies, power of attorney and the documents that are all needed by foreign company shareholder should be notarized and approved by Turkish consulate in your country or alternatively should be approved by the apostle registry. If the investor is here in TRNC, the power of attorney can be certified here. 
 
3. Corporate Structure to Protect the Foreign Shareholders’ Interest:
 
According to the Immovable Property Acquisition (Foreigners) Law (the “Law), it has been mentioned under Section 1 that if the Company is registered the Property in its name, the foreign shareholders can only own 49% in a corporation and the majority of the shares in the company (i.e. 51%) should be retained by TRNC citizens. 
 
The rule mentioned above may contain some risks and it would not be possible to eliminate all (under Companies Law, Section 113), but with the help of the actions taken by generating certain protection mechanisms below, it would be possible to prevent it. 
 
To minimize the risks, the percentage for the shareholder owned by TRNC citizens can be divided into portions. For example, in a property company having 51% TRNC citizen shareholding, a TRNC citizen candidate may hold less than 51% (i.e. 30%) and another TRNC citizen candidate may hold 21% so that together the total shares that the TRNC citizens hold in the company become 51%. In this manner, the foreign shareholders shall be in majority with 49%, but, no shareholder in the company shall be able to get a shareholders resolution by himself.
 
a Trust Mechanism:
 
It includes trust deed to be signed up by every TRNC citizen shareholders (hereinafter mentioned as the “candidate shareholders”) and the foreign shareholder(s), the candidate shareholders are holding the shares in the company as candidates, all the rights arising from the shares (including but not limited to voting, dividend, appointment of the directors and auditor rights etc.) belong to the foreign shareholders, the candidate shareholders shall transfer the shares to foreign shareholders and/or their candidates straightaway whenever required by the foreign shareholders. A draft of Trust deed can be sent to you by us, if you make a request. 
 
b Share Transfer Deed Mechanism:
 
The candidate shareholders state that they transferred all their shares in the company to another TRNC citizen(s) by signing a share transfer deed. Until the share transfers are registered to the Companies’ Registry within 21 days from signature no date should be put on the share transfer deed. This is a kind of security for the foreign shareholders as the candidate shareholder may reject transferring the share. Clearly, this new candidate shareholder should be Turkish citizen. 
 
c Class of Shares Mechanism:
 
To get most of the rights for foreign shareholders and to limit the rights given to the candidate shareholders Class of Shares can also be formed with the Articles of Association and the Memorandum of the Company. Therefore, the foreign shareholders should have certain rights such as; getting the dividends, being able to make decision rights in the shareholders/directors meetings, making appointment of the directors. With respect to the share transfers, provisions to the Articles of Association and Memorandum of the Company limitations can be inserted (i.e. right of first refusal, approval of the share transfers by all the directors and/or the shareholders, put option, call option) etc. 
 
To be able to control the candidate shareholders, the Articles of Association and the Memorandum might anticipate collected voting quorums from both directors and shareholders levels so that the candidate shareholders cannot make any decisions in both levels unless it is approved by the foreign shareholders and/or directors.
 
We have other security suggestions to make for you, if you feel like it such as; getting initiate over shares, bank guarantee letter and/or a charge (mortgage) etc. from the candidate shareholders. 
 
Foreign people can get a residency permit if they buy a property and register it in their name and/or sign a contract to buy a property in TRNC from the Ministry of Interior, which is the official governmental institution to give residency permit. 
 
Moreover, other people who have a right to have residency and working permit in TRNC are the foreigners owning a company or being directors in the company in TRNC.