llc

What is an LLC?

A limited liability company (LLC) is a hybrid business entity that combines the advantages of a partnership and a corporation. As a business entity in Cyprus, an LLC has a separate legal identity from its owners or shareholders. As such, the shareholders are only liable for up to the number of their shares. 

An LLC is a common business entity in many countries, as their respective government agencies regulate these. The Cyprus Registrar of Companies is responsible for regulating businesses in the country. In establishing an LLC, the subscribers (also called founding shareholders) sign a memorandum of association with the company’s objects and register it with the Cyprus Registrar of Companies. The subscribers also adopt and register the articles of association that contain company regulations on how the company is managed and how the business is conducted.

In Cyprus, an LLC has detailed requirements that include the following: 

  • Transfer of shares is restricted;
  • Subscribers are restricted to only 50 members. The number does not include employees of the company, subsidiaries, parent or sister companies who acquire their company shares while in the employment of the LLC.
  • LLCs are forbidden to sell shares of the company to the public.

A Cyprus LLC must have offices in Cyprus with a secretary and at least one director. Unlike a corporation, an LLC does not have a minimum share capital requirement. It can also be a single-member company, meaning that the secretary and director can be the same.

Advantages of an LLC

The main difference between a sole proprietorship and an LLC is that the subscribers are liable only for the number of shares they own. If the LLC goes bankrupt, the subscribers do not need to add or pay LLC creditors from their wealth. The LLC can only pay its debts up to the amount subscribed. This is the definition of “limited liability.”

For this reason, individuals and corporations use LLCs to conduct some or all of their operations without involving the parent or sister company’s finances. An individual trader can form an LLC to conduct business, and a corporation can create an LLC to protect the parent company from any liability in conducting business. A corporation can create an LLC to better manage a specific part of its operations. 

Although an LLC is the most popular form of business entity in Cyprus, it is not necessarily limited to individuals and corporations. Business entities (a single proprietor or a large corporation) can use an LLC as a joint venture with other businesses. 

A joint-venture LLC can accommodate unrestricted operations using custom articles of association. The articles of association can include:

  • Restrictions and procedures allow for the transfer of shares and revisions to subscribers’ share capital.
  • Management composition and methods for appointments.
  • The subscriber decision-making process and profit distribution rules and policies, as agreed by the subscribers.

Cyprus allows for either a private limited company or a public limited company. The following are the differences between a private limited company and a public limited company:

  • At least seven shareholders and a minimum authorised share capitalisation of 25,629 euros should be. The capitalisation has to be fully paid before the company can conduct business in Cyprus.
  • The public limited company can invite public subscriptions of its shares.
  • Shares are freely transferable.
  • There should be at least two directors.

Why You Should Consider an LLC in Cyprus

In 2020, amid the COVID-19 pandemic, Cyprus saw many new LLCs created in the country. There were 10,672 new companies registered in Cyprus in 2020. During the first quarter of 2021, there were a further 2,825 companies registered. The majority of these corporations were private limited companies registered from abroad. 

A foreign company that would like to do business in Cyprus can create a subsidiary, either a private or a public limited company. It is easier to set up an LLC to create a presence in the country. 

The subsidiary LLC provides the following advantages:

  • Corporate tax rates that is one of the lowest in the EU.
  • Tax exemptions and tax shields for foreign exchange gains or losses, interest income, and profits from company reorganisations.
  • Tax relief on foreign tax paid.
  • Favorable taxation treatment for profits at tax residency level.
  • Cyprus has double taxation treaties with more than 55 countries.
  • Subsidiaries that meet specific requirements can employ foreign nationals in Cyprus, allowing foreign parent companies to send their people as expat workers.

Another advantage of a Cyprus LLC is that it is an off-the-shelf company, and these can be acquired or custom-made depending on the needs of the parent company. Most off-the-shelf companies have articles of association that have wide objects and powers that can easily fit the needs of a foreign owner. However, if necessary, tailor-made articles of association can be easily created.

Establishing an LLC in Cyprus

Creating an LLC in Cyprus is straightforward and can be done in a short time. This has made the company popular for specific businesses that fit the rules and regulations of the country. The registration process is much the same as those found in other countries.

The first step in registering an LLC is registering the company name. It should be unique and not similar to any other company name already registered within Cyprus. If the name is already in use abroad, a consent letter is required. The term “ltd” should be included in the name. 

The procedures and fees are also standard, and efforts have been made to simplify these for business entities to more easily register their companies. The main documents for submission are the memorandum and the articles of incorporation. These documents prove that the shareholders exist and there is a need to create the company

The following information is included in the application for registering a document:

  • Company name, as approved by the Registrar of Companies.
  • Registered office address in Cyprus
  • Objects of the company.
  • Capital amount to be registered, and the division of capital into shares with a fixed amount.
  • Articles of association that include the company regulations regarding management. 

Conclusion

The LLC is the most popular form of business in Cyprus, and business entities worldwide continue to create subsidiaries or sister companies in the country. LLCs are easy to create and simple to register.