Shipping Organisation

General Information

By virtue of article 84Z of the Merchant Shipping Act, 1973 (Chapter 234), a shipping organisation may be established as a private or public limited liability company or a partnership 'en nom collectif' or 'en commandite'. The most common form in Malta is the private limited liability company (hereinafter referred to as "shipping organisation"), registered under the Merchant Shipping (Shipping Organisations - Private Companies) Regulations, 2004 (Subsidiary Legislation 234.42) ("the Regulations"). A shipping organisation qualifies as such if it is licensed by the Registrar-General of Shipping and Seamen and has as its principal object(s) any or all of the activities inter alia of ownership, operation and management of a ship registered under the Malta Flag. A shipping organisation may also be used as a holding company in other shipping organisations. These activities constitute what is termed a 'cluster' of maritime activities which then qualify for authorisation by the Malta Maritime Authority and are, as a result, entitled to beneficial fiscal treatment under the Merchant Shipping Act.  In terms of the Merchant Shipping (Licensing of Shipping Organisations) Regulations, 2004 (Legal Notice 222 of 2004), made under the Merchant Shipping Act, shipping organisations are also subject to be licensed in a special register held at the Registry of Shipping at the Malta Maritime Authority, and must also apply for an International Maritime Organisation number before registration.

The Regulations, made under the Merchant Shipping Act, apply to any organisation formed as a private limited liability company and qualifying as a shipping organisation in terms of article 84Z of the Merchant Shipping Act unless it ceases to so qualify.  A shipping organisation can be formed with objects beyond the registration of ships in Malta, but the objects are limited as indicated hereunder.

An organisation shall qualify as a shipping organisation under the Merchant Shipping Act if its principal objects are one or more of the following activities:

* the ownership, operation (under charter or otherwise), administration and management of a ship or ships registered as a Maltese ship in terms of the Merchant Shipping Act and the carrying on of all ancillary financial, security and commercial activities in connection therewith;

* the ownership, operation (under charter or otherwise), administration and management of a ship or ships registered under the flag of another state and the carrying on of all ancillary financial, security and commercial activities in connection therewith;

* the holding of shares or other equity interests in entities, whether Maltese or otherwise, established for any of the purposes stated in these paragraphs and the carrying on of all ancillary financial, security and commercial activities in connection therewith;

* the raising of capital through loans, the issue of guarantees or the issue of securities by the company when the purpose of such activity is to achieve the objects stated in these paragraphs for the shipping organisation itself or for other shipping organisations within the same group; and

* for the carrying on of such other activities within the maritime sector which the Minister responsible for shipping may, on the advice of the Malta Maritime Authority, from time to time prescribe by regulations as qualifying for the above purpose.

The Regulations, introduced to cater for the formation of shipping organisations as private limited liability companies, are modelled on the Companies Act but are less detailed and less onerous. They are tailor-made for the shipping context based on the experience of the last 25 years. These Regulations are more flexible and more sensitive to the realities of shipping operations where companies usually own a single ship, and also comply with EU Company law Directives.

A private company may change its status to a public company in terms of the Companies Act whereupon the company shall no longer be regulated by the Regulations but shall be subject to the Companies Act. In turn, a public company may change its status to a private company in terms of the Regulations whereupon it shall no longer be regulated by the Companies Act but shall be subject to the Regulations. By virtue of the Merchant Shipping Act, a shipping organisation may also operate under a trust (a shipping trust) or be a foundation (a shipping foundation), or may also be any foreign corporate body or other entity enjoying legal personality in terms of the law under which it has been established or constituted and which has established a place of business in Malta. Where the shipping organisation is a shipping trust, the trust shall be regulated by the Trusts and Trustees Act, 1988 (Chapter 331).

At present, there is draft legislation to allow the re-domiciliation into and out of Malta of the shipping organisation to which the Regulations apply.

Incorporation

In terms of the Regulations, it is not a requirement to have two (2) shareholders. Shipping organisations regulated by these Regulations may be constituted by and have a single member, reducing the costs in setting up this type of company. In the case of single member companies, there shall be an indication of the main activities of the company. The single member may also be a body corporate, even a foreign body corporate. A shipping organisation may have a single member upon registration or it may become a single member company through the acquisition of all its shares by one person inter vivos or causa mortis, in which case it shall file a notice to that effect within fourteen (14) days in terms of the Seventh Schedule to the Regulations. 

The registration of ships is made under the Merchant Shipping Act. Malta flagged vessels may be owned by either a shipping organisation or by an 'International Owner' (citizen of the EU or a foreign body corporate which enjoys legal personality) provided there is a Resident Agent appointed to act on its behalf.

In terms of the Regulations, a shipping organisation will not be validly constituted unless a Memorandum of Association is entered into and a certificate of registration is issued in respect thereof. The Memorandum must state:

* that it is a shipping company for the purposes of the Merchant Shipping Act;

* that the company is a private company;

* the name and residence of each of the subscribers thereto (there are no restrictions on the basis of nationality with regards to shareholdings);

* the name of the company (the words "private limited company", "Limited"(or "Ltd.")) must always be inserted at the end);

* the registered office in Malta of the company;

* the objects of the company which shall be limited to one or more of the objects specified for shipping organisations by the Merchant Shipping Act;

* the amount of share capital with which the company proposes to be registered, 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 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;

* the manner in which the representation of the company is to be exercised, and the name of the first person or persons vested with such representation; and

* the period, if any, fixed for the duration of the company.

If Articles of Association are not registered, or, if they are registered, in so far as they do not exclude or modify the model regulations contained in the First Schedule to the Regulations, such model regulations will be the regulations of the shipping organisation in the same manner and to the same extent as if they were contained in duly registered Articles.

On the registration of the Memorandum and Articles, if any, of a shipping organisation, the Registrar shall certify that the shipping organisation is registered as stated under the Regulations, and the shipping organisation shall come into existence and be authorised to commence business as from the date of registration indicated in the certificate of registration. The certificate of registration given in respect of a shipping organisation is conclusive evidence that the requirements of the Regulations in respect of registration and of matters precedent and incidental to it, have been complied with.

In terms of the Regulations, every shipping organisation must in each year hold an Annual General Meeting. Every general meeting other than an Annual General Meeting is called an Extraordinary General Meeting.

The Regulations provide for a fast-track winding up procedure in the case where its only asset (a ship) is sold by court action proceedings. In the latter case, the shipping organisation is struck off the Register of Companies upon the filing of a notice to the Registrar of Companies notifying him of the sale of the ship and the conclusion of the ranking of creditors procedure, and this without the need of any further proceedings.

Capitalisation and Financing

A shipping organisation is formed by means of a capital divided into shares held by two (2) or more members unless it is a single member company. The liability of each member is limited to the amount, if any, unpaid on the shares respectively held by each of them.

In terms of the Regulations, the share capital of a shipping organisation may be denominated in any currency which is a convertible currency. The authorised share capital of a shipping organisation shall be not less than €1,164.69. Where the authorised share capital is equal to this minimum, it shall be fully subscribed in the Memorandum, and where it exceeds such minimum, at least that minimum shall be subscribed in the Memorandum. At least 20% of the nominal value of each share taken up shall be paid up on the formation of the shipping organisation. The ordinary shares of a shipping organisation cannot be redeemable, and every shipping organisation must at all times have ordinary shares.

The Regulations stipulate that any increase in the issued share capital of a shipping organisation is to be decided upon by an ordinary resolution of the shipping organisation, unless the Memorandum or Articles require a higher percentage than that required for an ordinary resolution. A copy of such resolution is to be delivered to the Registrar of Companies for registration, within fourteen (14) days after the date of the relative resolution, failing which every director of the shipping organisation who is in default shall be liable to a penalty, and for every day during which the default continues, to a further penalty. There is no need of an Expert's Report for an increase in share capital for non-cash consideration as is necessary for Companies Act companies. Whenever a shipping organisation makes any allotment of its shares, it must, within one (1) month thereafter, deliver for registration to the Registrar of Companies in accordance with the provisions of the Seventh Schedule to the Regulations, a return of the allotments stating the number and the nominal amount of the share 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 addition, in the case of shares allotted as fully or partly paid up otherwise than in cash, a contract in writing or, where the contract is not reduced to writing, a document containing the particulars of the contract, constituting the title of the allottee to the allotment, together with any contract of sale, or for services rendered to other consideration in respect of which the allotment was made, and a return stating the number and nominal value of shares so allotted, the extent to which they are to be treated as paid up, and the consideration for which they have been allotted.

In terms of the Regulations, it is also possible that the shares in a shipping organisation be pledged.

Moreover, unless otherwise provided in its Articles, a shipping organisation formed and registered in Malta shall not recognise any nominee relationship or trust in respect of any security issued by it, and the shipping organisation shall not recognise, even when having notice thereof, any interest or other right in such security, but shall only recognise the registered holder thereof.

Shipping organisations can freely give guarantees even if not for corporate benefit. A shipping organisation, unless otherwise provided in its Memorandum or Articles, has the power to borrow money and to guarantee the obligations of any third party and, for such purpose, to hypothecate or charge its undertaking, property and uncalled capital or any part thereof including as security for its direct obligations or for those of third parties, and to issue debentures, debenture stock and other securities whether outright or as security for its direct liabilities or obligations or for those of any third party. However, when the grant of a guarantee for the obligations of a third party by a shipping organisation is made on a purely gratuitous basis, with no corporate benefit being derived therefrom by the shipping organisation, unless the Memorandum states otherwise, the issue of such guarantee shall require the consent of the members by extraordinary resolution.

The Regulations provide that financial assistance for the purpose of an acquisition or subscription of shares is possible if notice of disclosure of financial assistance is given to the Registrar of Companies in the prescribed form in accordance with the Seventh Schedule to the Regulations.

Board Structure

In terms of the Regulations, the single member may also act as sole director. There has to be at least one (1) director, and even a body corporate can be a director.There is no legal requirement to have a company secretary, and this practice is in fact very popular in Malta. This also reduces the cost in setting up the shipping organisation.

Similar to companies under the Companies Act, a shipping organisation is represented by its director(s), unless otherwise provided by its Memorandum or Articles of Association.

The Regulations stipulate that a document or proceeding requiring authentication by a shipping organisation may be signed by a director, or other authorised officer of the shipping organisation or other person authorised in writing. All documents supplied to the Registrar of Companies authenticated by an authorised representative not being a director or a secretary of the shipping organisation, are thus acceptable.

Annual Costs

The fees payable to the Registrar of Companies for the registration of a shipping organisation are calculated according to the shipping organisation'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. The fees are identical to those for limited liability companies registered under the Companies Act.

The Regulations lay down that every shipping organisation shall upon each anniversary of its registration, make an Annual Return in the form set out in the Fifth Schedule to the Regulations made up to the date of such anniversary. The Annual Return, duly completed, is to be signed by at least one (1) director of the shipping organisation and forwarded to the Registrar for registration within forty-two (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. The fees are identical to those for limited liability companies registered under the Companies Act.

Corporation Taxation and Financial Reporting

The most obvious benefit is chargeability to tax on the basis only of the tonnage tax of the vessels. . In fact, the Merchant Shipping (Taxation and Other Matters Relating to Shipping Organisations) Regulations, 2004 (Subsidiary Legislation 234.43) provide fiscal benefits to shipping organisations which register tonnage tax ships under the Malta flag. Here, "tonnage tax ship" is defined as either a ship declared to be a tonnage tax ship by the Minister responsible for shipping in terms of article 85A of the Merchant Shipping Act, or a ship registered under Part II or IIA of the Merchant Shipping Act of not less than 1000 net tonnage which is owned entirely, chartered, managed, administered or operated by a shipping organisation. In turn, "operation" in respect of a tonnage tax ship includes the operation of such ship in any shipping activities, whether under charter or under any other commercial arrangement.

The Merchant Shipping (Taxation and Other Matters Relating to Shipping Organisations) Regulations, 2004 provide that notwithstanding the provisions of the Income Tax Act, and provided that all tonnage tax is paid in respect of a tonnage tax ship:

* no further tax is charged or payable on its income, to the extent that such income is derived from shipping activities of a licensed shipping organisation; and

* no further tax is charged or payable on any gain arising on the liquidation, redemption, cancellation or any other disposal of shares, securities or any other interest, including goodwill, held in a licensed shipping organisation owning, operating, administering or managing a tonnage tax ship while she was a tonnage tax ship.

Notwithstanding anything contained in the Income Tax Act, no tax under that Act shall be payable by any person on interest or other income payable to him in relation to any financing of the operations referred to in the relevant provision of the Merchant Shipping Act and any regulations issued thereunder, of licensed shipping organisations, or the financing of any tonnage tax ship, provided that the application of such exemption to persons resident in Malta shall be restricted to such persons who are licensed banks, credit or financial institutions under the provisions of applicable law.

The tonnage tax regime is EU compliant and does not constitute State Aid. This is an effort at incentivising ship owners and operators to keep their ships registered under EU flags. This has ensured that Malta continues to enjoy its popular status as a maritime flag even within the EU.

Other benefits include:

* no exchange control restrictions;

* no restrictions on the nationality of the officers and crew;

* shares in a shipping organisation are freely transferable and are not subject to stamp duty and/or capital gains tax;

* no trade restrictions.

Employee Participation in Corporate Bodies

Not available under Maltese Law.