Limited Liability Company

General Information

The limited liability company is the most commonly used form and by far the most comprehensively regulated corporate legal entity under Maltese law. A limited liability company is validly constituted in accordance with the Act once a Memorandum of Association is entered into and subscribed by at least two (2) persons (either private individuals or bodies corporate or both) and a certificate of registration is issued in respect thereof by the Registrar of Companies. The Memorandum may be accompanied by the Articles of Association, a document which prescribes the internal regulations of the company. If Articles of Association are not registered, it is assumed that the model Articles of Association found in the First Schedule to the Act have been adopted. The Memorandum and Articles, if any, must be delivered to the Registrar of Companies who, being satisfied that all the requirements of law have been complied with, shall register them. A company comes into existence from the date of registration indicated in its certificate of registration. The length of time to incorporate a company depends on the type of company being incorporated and on whether all information and documentation are available and in order. Once the Registrar has all necessary documentation and information, the process may take from as little as 24 hours.

A limited liability company can be either private or public. A private company must, by its Memorandum or Articles of Association restrict the rights of members of private companies to transfer and register shares to non-members (e.g. shareholder pre-emption rights; rights of the Board to refuse the registration of a transfer); limit the number of members to fifty (50); and prohibit any invitation to the public to subscribe for any shares or debentures of the company. A public company is a company which does not qualify as a private company, and may offer shares or debentures to the public, but it may not issue any form of application for its shares or debentures unless the company is registered and the issue is accompanied by a prospectus. There is no maximum number of shareholders in the case of a public company.

Private companies may be either exempt or non-exempt. A private company may have the status of an exempt company, and qualify for certain advantages if the following conditions are contained in its Memorandum or Articles of Association:

* the number of persons holding debentures of the company is not more than fifty (50); and

* no body corporate is the holder of, or has any interest in, any shares or debentures of the company or is a director of the company, and neither the company nor any of the directors is party to an arrangement whereby the policy of the company is capable of being determined by persons other than the directors, members or debenture holders thereof.

The company's name must be approved by the Registry of Companies and must end with the words "public limited company" or "p.l.c." in the case of a public company, or "private limited company" or "Limited" (or "Ltd.") in the case of a private company.

Limited liability companies may also take the form of an investment company with variable share capital (SICAV) or an investment company with fixed share capital (INVCO).

Incorporation

A limited liability company has a legal personality which is separate and distinct from that of its members. The members' liability is limited to the amount, if any, unpaid on the shares respectively held by each of them.

A company may be registered in Malta by the shareholders or their respective authorised attorney(s) appointed to carry out all the necessary formalities required by the Registry of Companies. There are no restrictions (other than general rules of legal capacity) as to who can subscribe to shares in a company. It is usual practice for a company to be registered through a local firm of lawyers, accountants or consultants.

The Memorandum of Association of a limited liability company must state the object(s) for which such company is being incorporated. The objects may not be simply stated to be any lawful purpose or trade in general, but specific objects must be stated. A company's corporate capacity is usually limited by its objects as stated in the relevant objects clause in its Memorandum of Association. Unless otherwise provided by its Memorandum and Articles of Association, a company is empowered to borrow money, charge its property and issue any form of debentures.

A limited liability company must have a registered office in Malta. This may be at the office of a firm of lawyers, accountants or other providers of corporate services. A company incorporated in Malta on or after 1st July, 1994 is deemed to be resident in Malta for all purposes and effects of law. Any change of the registered office in Malta may be effected by a resolution of the directors and a statutory Form Q must be registered with the Registry of Companies.

The Memorandum of Association must specify the name and residence or business address of each of the subscribers, while their names, identification document number and addresses are publicly available at the Registry of Companies.

Shares may also be held in a fiduciary capacity by appropriately established fiduciary or trustee companies duly licensed by the Malta Financial Services Authority. A full list of the licensees is carried by the Authority's website at www.mfsa.org.mt.

A private exempt company may have a single member. Single member companies (which in Malta are not commonly utilised) must specify in the objects clause the activity which will constitute their main trading activity and the business of such companies must consist principally of that activity. Other objects may also be stipulated.

Every company must hold an Annual General Meeting. Every general meeting other than the Annual General Meeting is called an Extraordinary General Meeting.

Capitalisation and Financing

The Memorandum of Association of a company must state the total amount of the share capital and the nominal value of each share. A share is a numbered unit in the share capital of a company. It is deemed at law to be an item of movable property representing the property interest of its holder, having a fixed nominal value which is not necessarily the same as its market value. Shares ordinarily confer upon their holders rights to dividends, to the proceeds on a winding up, to vote at meetings as well as certain duties, such as that of paying up any unpaid dues on the shares. The share capital of a company may be denominated in Euro (€) or in any other convertible currency. The currency of the share capital must be the company's reporting currency for accounting and tax purposes.

The authorised share capital of a company must be:

* not less than €46,587.47 subscribed to by at least two (2) persons in the case of a public company; not less than 25% of the nominal value of each share subscribed to has to be paid up on the signing of the Memorandum; or

* not less than €1,164.69 subscribed to by at least two (2) persons in the case of a private company; 20% of the nominal value of each share subscribed to has to be paid up on the signing of the Memorandum (the lower statutory minimum share capital makes the private company popular with small and medium-sized enterprises);

* when the authorised share capital is equal to the minimum aforesaid, it has to be fully subscribed  in the Memorandum of Association and whenever it exceeds such minimum, at least that minimum has to be subscribed in the Memorandum.

The issued share capital of a company may be divided into different classes of shares, which usually have distinguishing descriptions, and different rights may attach to each class. The Memorandum must set out clearly how the classes of shares are made up, how they are to be paid up and what rights attach thereto or not.

Every company must have ordinary shares that are not redeemable. However, redeemable preference shares may also be issued if authorised by the Memorandum or Articles of Association of the company. The procedure for the redemption of redeemable preference shares is regulated by the Act. Essentially, the rule is that where a company issues preference shares which are to be redeemed or are liable to be redeemed at the option of the company or the shareholder, no such shares can be redeemed except out of the profits of the company which would otherwise be available for distribution as dividends; or  out of the proceeds of a fresh issue of shares made for the purpose of the redemption. Other conditions must also be satisfied as regards the issuance and the terms and manner of redemption of preference shares.

The redemption procedure set out in the Memorandum and Articles of Association of a particular company must be followed when redeeming preference shares. A Notice of Redemption of Preference Shares must be given by the company to the Registry of Companies by filing a statutory Form T(1) within fourteen (14) days from the date of the redemption for registration therewith (a penalty is chargeable on default). Redeemed preference shares are treated as cancelled on redemption, and the amount of the company's issued share capital is reduced by the nominal value of those shares, provided that redemptions of preference shares by a company are not to be taken as reducing the amount of the company's authorised share capital.

A company's issued share capital may be reduced pursuant to an extraordinary resolution of the shareholders of the company authorising the reduction in the share capital. The notice convening the Extraordinary General Meeting must also specify the purpose of the reduction and the way in which it is to be carried out. However, any reduction of a company's issued share capital cannot take effect until three (3) months from the date of the official publication of a notice relating to the resolution effecting such alteration. This allows a company creditor whose debt existed prior to the publication of the notice to object by sworn application filed within the said three (3) months and satisfy the Court that, due to the proposed reduction in the issued share capital, the satisfaction of his claims would be prejudiced and that no adequate safeguards have been obtained from the company. The court may either uphold the objection or allow the reduction on sufficient security being given.

An alteration consisting in the reduction of the issued share capital whose purpose is to offset losses incurred or to include sums of money in a reserve takes effect immediately on the registration of the resolution concerning such a reduction and the provisions relating to the rights granted to creditors of the company do not apply, provided that:

* the amount of such reserve is, following this operation, not more than 10% of the reduced issued share capital; and

* any such reserve shall be used only for offsetting losses incurred or for increasing the issued share capital by the capitalisation of such reserve.

In the case of an alteration consisting in the reduction of the issued share capital whose purpose is to offset losses incurred or to include sums of money in a reserve, the amounts deriving from the reduction of the issued share capital may not be used for making payments or distributions to shareholders or to discharge shareholders from the obligation to pay calls on their shares.

If the provisions relating to the three (3)-month period and to the rights granted to the creditors of the company are followed for the purpose of reducing any sum of money contained in any such reserve (for offsetting losses incurred or for increasing the issued share capital by the capitalisation of such reserve), the amounts deriving therefrom may be used for making payments or distributions to shareholders.

Board Structure

The business of a company is managed by the directors who may exercise all the powers of the company except those reserved to the company in General Meeting. The directors are named in the Memorandum of Association and are always subject to removal by the shareholders. However, directors act independently of the shareholders and cannot be bound by the latter's decisions. A private company must have at least one (1) director and a public company at least two (2). There are no nationality or residence restrictions with respect to directors. It is not necessary for a director to hold shares in a company. A director may be a corporate entity, but not in the case of a company whose securities are listed on the Malta Stock Exchange. As a rule, a sole director cannot occupy the post of company secretary, unless the company has private exempt status.

Unless otherwise provided in the Memorandum or Articles of Association, the Board of Directors has the power to appoint a managing director and may delegate to the managing director or to any director any power exercisable by the Board.

The Memorandum and Articles of Association must specify the manner in which the representation of the company is to be exercised and the name of the person or persons vested with the legal and judicial representation of the company at any time. The directors of a limited liability company are bound by certain statutory fiduciary and other duties and obligations in terms of the provisions of the Act. By definition, the term "director" includes any person occupying the position of director by whatever name called if he carries out substantially the same functions in relation to the direction of a company as those carried out by a director.

The general fiduciary duties of directors are defined in the Act. Directors of companies (inter alia):

* are bound to act honestly and in good faith in the best interests of the company;

* must promote the well-being of the company;

* are responsible for the general governance of the company and its proper administration and management and the general supervision of its affairs;

* are expected to exercise the degree of care, diligence and skill which would be exercised by a reasonably diligent person;

* must not make secret or personal profits from their position nor make personal gain from confidential information of the company;

* must ensure that their personal interests do not conflict with the interests of the company; and

* must not use any property, information or opportunity of the company for their own or anyone else's benefit, or misuse the powers granted to them.

Directors also have specific duties, which include among others:

* the preparation of the financial statements of the company in accordance with the law, such as to give a true and fair view of the state of affairs of the company as at the end of each financial period and of the profit or loss for that period;

* keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company enabling them to ensure that the financial statements comply with the Act;

* the preparation of the directors' report;

* the preparation and filing of the income tax return by the due date and paying the tax (if any) due to the Commissioner of Inland Revenue by the tax settlement date;

* the preparation and filing of Value Added Tax (VAT) Returns and paying the tax due (if any) to the VAT Department by the due date;

* the appointment of the first auditors of the company;

* ensuring that a copy of the audited financial statements, duly signed in original by the directors and the auditors, are registered with the Registry of Companies each year;

* the preparation, execution and registration of the statutory Annual Return as well as any other statutory forms or notices with the Registry of Companies;

* the appointment of a suitable company secretary;

* the laying of accounts before the Annual General Meeting and ensuring that such Annual General Meeting is duly convened and held in terms of the Memorandum and Articles of Association;

* the making of a declaration of solvency when dissolution is proposed; directors are liable for any misrepresentation;

* in certain cases, the making of a request for the appointment of a liquidator;

* the convening of a creditors' meeting for winding up;

* the presentation of certain documents to creditors in a creditors' winding up; and

* safeguarding the assets of the company and taking reasonable steps for the prevention and detection of fraud and other irregularities.

The law prohibits any person to be appointed or to hold office as a director or as company secretary if:

* he/she is interdicted or incapacitated or is an undischarged bankrupt;

* he/she 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/she is a minor who has not been emancipated to trade; or

* he/she is subject to a disqualification order by the Court.

As a general rule, directors are personally liable for damages in case of any breach of their duties. Their responsibility is joint and several. Directors may also face criminal responsibility for 'company law crimes' relating to dissolution and winding up.

Furthermore, and very importantly, the directors of a company are personally liable for the payment of income tax and any additional tax and interest due by the company in accordance with the Income Tax Act, 1948 (Chapter 123) and the Income Tax Management Act, 1994 (Chapter 372). The Commissioner of Inland Revenue is entitled to enforce his claim for the payment of the tax by way of an executive title against the company and may also proceed with its enforcement against every principal officer (including a director) of the company.

Company directors are also personally liable for any failure to pay any VAT due by the company to the VAT Department.

Every company must have a company secretary. The latter must also be named in the Memorandum of Association and is subject to removal by the Board of Directors. The directors must then appoint another individual in his stead within fourteen (14) days from the date of his removal. There are no nationality or residence restrictions. While a director may be a corporate entity (except in the case of a company whose securities are listed on the Malta Stock Exchange), the company secretary must always be an individual (except in the case of SICAVs where a company secretary may also be a body corporate).

No company shall have as sole director of the company a body corporate the sole director of which is company secretary to the company. In the event that the post of company secretary becomes vacant, the directors of the company shall, within fourteen (14) days from the date when the post becomes vacant, appoint another individual to fill the post. Every director of the company who is in default shall be liable to a penalty, and for every day during which the default continues, to a further penalty. Anything required or authorised to be done by or to the company secretary may, if the office is vacant or if there is for any other reason no company secretary capable of acting, be done by or to any officer of the company authorised generally or specifically in that behalf by the directors.

A document or proceeding requiring authentication by a company may be signed by a director, the company secretary or other authorised officer of the company.

The Company Secretary is accountable to the Board of Directors alone. The Act imposes on the Company Secretary a long string of functions and duties (mostly of an administrative nature, relating to the keeping of registers and records and the filing of returns and documentation with the Registry of Companies) backed by penalties in the event of a breach thereof. This heightens the level of competence and professionalism with which companies should conduct their affairs. In some instances, the Act specifically identifies the company secretary, along with other officers, as responsible for particular functions. The vast majority of duties imposed on, and powers granted to, the company secretary by the Act are also imposed on, or granted to, the directors. In certain instances, the Act imposes duties on the company without specific reference to the company secretary or other officers. Where duties are imposed on the company without specifically saddling the company secretary with responsibility, the company secretary would be responsible to carry out such duties, because the Act stipulates that anything required to be done by a company under any of its provisions shall be deemed also to be required to be done by the officers of the company.

In its interpretation provision, the Act states clearly that the word "officer" in relation to a company, includes a director, manager or company secretary, but does not include an auditor.

Where, as is so often the case, the Act imposes obligations on all the officers of a company, the precise allocation of functions and responsibilities as an internal matter between the officers (principally between the directors and the company secretary) is something for the Articles and, in the absence of any specific rules therein to the contrary, for the directors to determine. This determination may take place either expressly or implicitly. Functions and responsibilities may be delegated by the directors to a company secretary by ad hoc written terms of reference and sometimes even by informal communications from the Board or its chairman. The company secretary's contract of employment (where one is entered into) may also specify particular functions and responsibilities. Besides, in this field, a significant role is played by company secretarial practice.

Annual Costs

The fees payable to the Registrar of Companies for the registration of a company are calculated according to the company's authorised share capital as indicated by the Registry of Companies. Registration can be made either in paper format or in electronic format (which costs less) and the fees levied vary accordingly. If a company subsequently increases its authorised share capital, the difference in registration fees would be levied. In paper format, the minimum tariff is of €245 for companies having an authorised share capital not exceeding €1,500, increasing to a maximum of €2,250 for companies with an authorised share capital of more than €2,500,000.

Furthermore, all companies must prepare an Annual Return in the prescribed format stipulated in the Seventh Schedule to the Act, upon each anniversary of their registration. The Annual Return must be filed with the Registrar of Companies within 42 days after the date to which it is made up. Along with the Annual Return, an annual fee is also payable to the Registry of Companies. In paper format, the minimum annual fee is of €100 for companies having an authorised share capital not exceeding €1,500; and the maximum annual fee is of €1,400 for companies with an authorised share capital in excess of €2,500,000.

Corporation Taxation and Financial Reporting

In March, 2006, the Government of Malta reached an agreement with the EU Commission regarding Malta's tax system. A fundamental feature of this agreement was the retention of Malta's tax imputation system. The principles of the agreement were subsequently implemented into law. Malta's proposal, as accepted by the EU Commission, was to the effect that its refundable tax credit system was to be extended to all shareholders of Malta companies (the "Extended Tax Refund System"). Hence, as from 1st January, 2007, all shareholders (whether resident or otherwise) receiving dividends distributed by Malta companies were entitled to claim tax refunds. Subject to certain procedural rules, the refunds apply regardless of the company's legal form, status or size, or the residence or otherwise of its shareholders. The EU Commission also recognised that the current full or 100% tax refund in relation to participating holdings held by Malta companies can remain in place since it conformed to Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, known as the EU's Parent - Subsidiary Directive (Official Journal of the European Communities, L 225, 20/08/199, pp. 0006-0009).

Another benefit of the Extended Tax Refund System is that the restrictive rules existing prior to 2007 on the type of activities that can be performed by Malta companies are no longer necessary for companies incorporated after 1st January, 2007. From that date onwards, the tax refunds would apply irrespective of the type of activities carried out by the company. Thus, Malta companies engaged in international trading and/or holding activities are taxable, onshore limited liability companies registered in Malta in terms of the Act and may be used for any activities, whether domestic, international, or, both. Save for the shipping organisation, Malta has no multiple (and often confusing) types of companies but rather one form of limited liability company that is subject to tax at the rate of 35%.

Advance Company Income Tax is payable by the company on its profits at the standard corporate 35% tax rate. This is probably one of the advantages that prospective promoters of Malta companies would seek to benefit from as it substantiates the argument that a Malta company qualifies as 'fiscally resident' in Malta for tax treaty purposes. This is especially relevant in the context of the extensive network of Double Taxation Agreements (principally modelled on the OECD 1977 Model Taxation Convention on Income and on Capital) to which Malta is a party.

Malta companies are particularly tax-efficient corporate vehicles and can be (and have been) advantageously utilised in a virtually unlimited variety of:

* trading, commercial and service activities in any sector; particularly in the provision of commercial, management, technical and other services, group treasury operations and the international purchase and sale of goods; and/or

* holding activities, including the holding of shares in other companies, intellectual property rights, loan rights, bank accounts and other assets, whether tangible or intangible, movable or immovable.

A company is deemed to be resident in Malta for tax purposes when the control and management of its business are exercised in Malta. However, companies registered in Malta are fiscally resident and are taxed in Malta at the standard corporate rate of 35%, irrespective of their place of management and control. Malta has adopted the full imputation system concurrently with the introduction of its income tax legislation in 1948.  Accordingly, a company has to deduct tax at a flat rate of 35% of the taxable profits or chargeable income from which a dividend payment is made, and the shareholders will then be able to claim a tax credit for the tax payable by the company. In this manner, double taxation in the hands of both the company and its shareholders is avoided.

Shareholders in receipt of a dividend from a company do not need to declare the dividend in their tax return; their tax liability (if any) is offset by the amount of tax withheld by the company when making the dividend payment. Since Malta applies the full imputation system of taxation, company shareholders (irrespective of whether they are Maltese or not) are entitled to a tax credit for the tax suffered by the company paying the dividend. Shareholders are also entitled to refunds of all or part of the tax paid by the company. For a shareholder to be eligible to apply for and obtain the payment of the appropriate tax refund, it is necessary for the shareholder to be registered with the Commissioner of Inland Revenue in the prescribed manner. Such shareholder must advise in writing the company from which he expects to receive a dividend in respect of which he wishes to make a claim, and for the company to register him accordingly on the prescribed form. Companies must  abide  by  strict  time  limits  for  the  annual  registration  of  shareholders with  the Inland  Revenue  Department in order for the shareholders  to  be eligible to any applicable refunds.

Failure to do so renders the shareholders ineligible to any refunds for the year in respect of which the shareholder registration should have occurred.

Apart from this, shareholder registration will also be required in the event that another person or entity becomes a shareholder of the company, such as following upon a share transfer inter vivos, an increase in capital resulting in the allotment of shares to a new member or a transmission of shares causa mortis. 

Annual accounts must be drawn up, in accordance with generally accepted accounting principles and  practice, at the end of each accounting period. Accounts must comprise a balance sheet, profit and loss account and notes to the accounts. The accounts are to be audited by a Maltese certified public accountant and auditor. The accounts must also be approved by the company's Annual General Meeting. In addition, the company's director(s) and auditor(s) must prepare reports. The company's directors are obliged to deliver to the Registrar for registration a copy of the company's annual accounts together with a copy of the auditors' report and the directors' report accompanying the annual accounts within the prescribed period. Small companies (as defined in the Act) are allowed to draw up abridged accounts.

Employee Participation in Corporate Bodies

Not available under Maltese Law.