General
A private limited liability company may be set up as such although a qualifying private company may have the status of a private exempt company.
A private limited liability company is a company which, by its Memorandum and Articles of Association:
- restricts the right to transfer its shares;
- limits the number of its members to 50; and
- prohibits any invitation to the public to subscribe for any of its shares or debentures.
A private exempt company is less strictly regulated (see below). However, the Memorandum or Articles of Association of such a private exempt company must further:
- restrict the number of persons holding debentures of the company to a number not exceeding 50; and
- prohibit any bodies corporate from acting as a director of the company, and furthermore, prohibit the company or any of the directors from being 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.
A private company must have at least 2 members. However, the Act permits the incorporation of asingle membercompany provided that the company also qualifies as a private exempt company.
Should one person acquire the entire share capital of aprivatelimited liability company or a privateexemptcompany then a notice must be submitted to the Malta Business Registry informing the said Registrar that the company has become a single member company and confirming that it complies with the above described requirements relating to privateexemptcompanies.
The Memorandum of Association
The Memorandum of Association of a private company must contain the following information:
Name of the company
The name of a private company must end with the words ‘Limited’ or ‘Ltd’. Naturally, a company name must not be identical or even similar to the name of another company already in existence. Company names may be reserved with the Malta Business Registry for a period of 3 months.
An indication as to whether the company is a public or private company;
Personal details of each of the shareholders (i.e. name, residential address in full and passport or identification card number)
The objects of the company
The objects of a company may not simply be any lawful purpose or trade in general and, accordingly, the main trading activities and powers of a company are typically listed in detail.
The objects clause in the Memorandum of Association of a single member company must specify the nature of its main trading activity and the business of the company must then principally consist of that activity.
The registered office in Malta of the company
This clause sets out the address where the registered office of the company is to be situated. Apart from its function of establishing domicile and nationality, an address is essential for the serving of all official and judicial documents. The registered office must be in Malta and cannot be a PO Box. The registered office is the place where certain documents such as the register of members, register of debentures, the minutes of meetings and accounting records are to be kept, unless provided otherwise.
The electronic mail address of the company
The authorised and issued share capital of the company, divided into shares of a fixed nominal value
The authorised and issued share capital of a private company must not be less than €1,165. Accordingly, where the authorised share capital is equal to the minimum €1,165 then it is to be fully issued and allotted upon incorporation. Where the authorised share capital exceeds the said minimum amount, at least €1,165 must be issued and allotted upon incorporation. Issued share capital need not be fully paid up upon allotment although not less than 20% of the nominal value of each share taken up must be paid up. The share capital of a company may be denominated in Euro or in any foreign convertible currency.
The number of shares taken up by each shareholder 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
Class rights may comprise a right (i) to dividends; (ii) to a return of capital; (iii) to participate in surplus assets on a winding up; (iv) to attend and vote at meetings; and (v) right to appoint and/or remove directors.
The number of directors and their personal /corporate details
Private companies must have at least one director who need not necessarily be a Maltese resident. However, private exempt companies (including single member companies) cannot have corporate directors.
The manner in which the legal and judicial representation of the company is to be exercised and the name of the first person/s vested with such representation
The director/s of a company are typically vested with the legal and judicial representation of a company (acting alone or jointly).
Personal details of the first company secretary/ies
A company may provide for one or more company secretaries which must be physical person/s. If more than one secretary is appointed, they would be jointly and severally responsible for their actions.
All companies must appoint a company secretary. A sole director of a private exempt company (and therefore, also a single member company) may also act as company secretary.
The period, if any, fixed for the duration of the company.
Capital Issues
Private companies are not restricted by mandatory pre-emption such that shareholders are not ipso jure granted such rights to acquire shares in the company in preference to third parties. However, pre-emption rights are commonly entrenched in the Articles of Association of private companies and, as such, are widely applicable although often waived.
However, rights of pre-emption are reserved in favour of the members of a private company in the context of a pledge of shares such that, in the event of the debtor’s default, the pledgee of shares would be required to offer the shares to other members of the company prior to transferring them to third parties or appropriating and acquiring them himself.
No prospectus is required in respect of any issue of shares by a private company.
The directors of a private company may be entitled, in terms of the company’s Memorandum or Articles of Association, to refuse to register a transfer of shares.
Private companies may not issue share warrants to bearer.
Resolutions
An extraordinary resolution of the members of a private company is one taken at a general meeting of which notice specifying the intention to propose the text of the resolution as an extraordinary resolution and the principal purpose thereof would have been duly given and which would have been passed by a number of members having the right to attend and vote at the meeting holding in the aggregate not less than 51% in nominal value of the shares conferring that right or such other higher percentage as the Memorandum or Articles of Association may prescribe.
On the other hand, an ordinary resolution would be passed by a member or members having the right to attend and vote holding in the aggregate shares entitling the holder/s thereof to more than 50% of the voting rights attached to shares represented and entitled to vote at the meeting. The Memorandum or Articles of Association of a company may prescribe a higher percentage – other than in respect of a vote to remove a director insofar as a director may be removed, irrespective of anything contained in the company’s Memorandum or Articles of Association, by a member or members having the right to attend and vote, holding in the aggregate shares entitling the holder or holders thereof to more than 50% of the voting rights attached to shares represented and entitled to vote at the meeting.
A resolution in writing signed by all the members of a private company entitled to receive notice of, attend and vote at general meetings of the company would be valid and effective as if the said resolution had been passed at a general meeting duly convened and held (including the annual general meeting of the company). However, a director or auditor may not be removed from office by means of any such written resolution.
Accounts
A private company must prepare individual accounts comprising the:
- balance sheet as at the last day of the accounting period to which they refer;
- profit and loss account for the said accounting period;
- notes to the accounts;
- directors’ report; and
- auditors’ report.
Such accounts must give a true and fair view of the company’s assets, liabilities, financial position and profit and loss and they are to be laid before the members in general meeting for approval within 10 months after the end of the relevant accounting reference period.
Audited accounts approved by the company’s members must then be submitted to the Malta Business Registry for registration.
Notwithstanding the aforesaid, a ‘small’ private company would merely be required to draw up abridged accounts (that is, abridged balance sheet, profit and loss account and notes) and to deliver such audited abridged accounts to the Malta Business Registry. A company would be ‘small’ for the purposes of the Act if it does not, on its balance sheet date, exceed two of the following three criteria:
- balance sheet total: €4,000,000
- turnover: €8,000,000
- average number of employees during the accounting period: 50.
Furthermore, if the ‘small’ company is also a private exempt company, then it would only be required to deliver its abridged balance sheet, all the notes to the accounts relevant for the purposes of that balance sheet and the auditors’ report to the Malta Business Registry but no profit and loss account or directors’ report.
Finally, in terms of the Act, a private company which does not exceed two of the following three criteria:
- balance sheet total: €46,600;
- turnover: €93,000;
- average number of employees during the accounting period: 2
would be additionally exempted from appointing an auditor at its annual general meeting and from the requirement of procuring an auditor’s report on the accounts. The said accounts may be drawn up in an abridged form in a manner equivalent to that applicable with respect to small companies. Finally, should the qualifying company be an exempt company, then it would only be required to deliver its abridged balance sheet and all the notes to the accounts (relevant for the purposes of that balance sheet) to the Malta Business Registry but no profit and loss account, directors’ report or, of course, an auditors’ report.
NB: Notwithstanding the above-mentioned concessions to small and private exempt companies in respect of their accounts, all companies in Malta are effectively required to prepare full accounts insofar as such accounts are required for submission to the local tax authorities in terms of the Income Tax Management Act, Chapter 372 of the laws of Malta.
Change of Status – Private & Public
A private company may be converted into a public company merely by the alteration of its Memorandum and Articles of Association so as to incorporate all changes required by the provisions of the Act for a company to hold the status of a public company. Accordingly, the above-mentioned restrictions prescribed in respect of private companies and which conflict with the status of a public company must be deleted or appropriately adjusted. The resolution approving the said adjustments and the conversion must be delivered to the Malta Business Registry for registration together with:
- a copy of a balance sheet prepared as at a date being not more than 4 months before the conversion is effective together with an auditor’s report drawn up in relation thereto; and
- a written statement by the company’s auditors proving that in their opinion, at the balance sheet date, the amount of the company’s net assets was not less than the aggregate of its called up issued share capital and undistributable reserves; and
- a declaration by any director of the company confirming that between the balance sheet date and the date of delivery of the same to the Registrar for registration, there was no change in the company’s financial position which resulted in the amount of its net assets becoming less than the aggregate of its called up issued share capital and undistributable reserves.
The conversion of the company into a public company would be effective once the aforementioned resolution approving the same is registered by the Malta Business Registry. In the interim period subsequent to the balance sheet date and prior to the delivery of the relevant resolution, the company cannot allot or propose to allot shares for a consideration other than in cash.
On the other hand, a public company may change its status to a private company by the approval of all alterations to its Memorandum and Articles of Association incorporating the restrictions prescribed in respect of a private company. The relevant resolution/s approving such alterations must be delivered to the Malta Business Registry for registration together with a declaration made by the directors of the company, confirming that the company is now in conformity with the said prescribed restrictions. The conversion of the company into a private company would be effective once the said resolution approving the same is registered by the Malta Business Registry.
Once a public company is converted into a private company, it would be required to redeem the shares held by the dissenting members if they so request and on such terms as may be agreed or as the court (on a demand of either the company or its dissenting members) deems fit to order.
