Do Cyprus Companies Allow Bearer Shares?

Do Cyprus Companies Allow Bearer Shares?

As international business people look for efficient and legally sound business structures for their cross-border and international trade, foreign direct investment, or virtual business activities, Cyprus often emerges as an attractive option. One key question that arises when considering incorporating a Cyprus company is whether bearer shares are allowed. This article aims to provide an honest and straightforward answer to this question while also discussing the implications of bearer shares for Cyprus companies.

Bearer shares are a type of equity security that does not have a registered owner. The holder of the physical share certificate is considered the owner of the shares, and ownership is transferred by simply handing over the physical certificate. Bearer shares have been controversial due to their potential for facilitating tax evasion, money laundering, and other illicit activities, as they enable anonymity and make it difficult to track the real owners of a company.

To determine whether Cyprus companies allow bearer shares, it is crucial to examine the relevant laws and regulations governing company formation in Cyprus. The primary legislation regulating Cyprus companies is the Companies Law, Cap. 113, which sets out the rules and requirements for the incorporation, management, and dissolution of companies in the country.

Under Cyprus law, the issuance of bearer shares is explicitly prohibited. In 2003, Cyprus enacted the Abolition of Bearer Shares Law (Law 41(I)/2003), which abolished the use of bearer shares for all Cyprus companies. The law mandated that all existing bearer shares be converted to registered shares, effectively eliminating bearer shares from the Cyprus corporate landscape.

The prohibition of bearer shares aligns with Cyprus's commitment to international transparency and anti-money laundering (AML) standards. Cyprus is a member of various international organizations and adheres to global AML and transparency requirements, such as the Financial Action Task Force (FATF) recommendations and the Organisation for Economic Co-operation and Development (OECD) standards. The abolition of bearer shares demonstrates Cyprus's commitment to maintaining a reputable and transparent business environment that discourages illicit activities.

Although bearer shares are not allowed in Cyprus companies, there are alternative structures and mechanisms available for those seeking a certain level of privacy and flexibility in their corporate ownership. For example, Cyprus companies can use nominee shareholders, where a third party holds the shares on behalf of the beneficial owner. This arrangement provides a degree of anonymity while still complying with Cyprus's transparency and AML requirements, as the beneficial owner's identity is disclosed to the nominee shareholder and relevant authorities.

Another option is the use of trust structures, where a legal entity, such as a trust or foundation, holds the shares on behalf of the beneficial owner. This arrangement can provide additional layers of asset protection and privacy while remaining compliant with Cyprus law and international standards.

In conclusion, Cyprus companies do not allow bearer shares, as they have been explicitly abolished by law. This prohibition reflects Cyprus's commitment to maintaining a transparent and reputable business environment that adheres to international AML and transparency standards. However, alternatives such as nominee shareholders and trust structures can provide privacy and flexibility for international business people seeking a legally sound and efficient business structure in Cyprus. By understanding the legal framework governing company formation in Cyprus and considering the available options, you can make an informed decision about the most suitable structure for your cross-border and international business endeavors.