Starting March 15, 2024, new legal provisions apply to the conversion of Cyprus companies to companies in EU Member States, and vice versa. This follows the amendment of the Companies Law (No.3) of 2024 (Law 26(I)/2024), which incorporates Directive (EU) 2019/2121 (the “Mobility Directive”) into domestic law. The directive amends Directive (EU) 2017/1132 concerning cross-border conversions.
A cross-border conversion is defined as a process through which a Limited Liability Company changes its legal form and transfers its registered office to another EU Member State, while retaining its legal personality. Cross-border conversion, however, cannot be applied to companies in liquidation, insolvency, or under crisis prevention measures.
The process of the conversion involves both the Cyprus Department of Registrar of Companies and Intellectual Property (RoC) and the Cyprus Court to protect the interests of the Company’s employees and members.
The directors of the converting company must draft terms that outline, among others, the legal form, name, and location of its registered office, the instrument of constitution of the company in the destination Member State as well as the proposed indicative timetable for the cross-border conversion. Directors must also prepare reports explaining the legal and financial implications of the conversion for employees and members. An independent expert examines the draft terms, focusing on the adequacy of cash compensation for members.
Shareholders must be informed of their new rights, including the right to sell their shares for adequate cash compensation if they vote against the approval of the common draft terms of the cross-border operation, and the right to challenge the share-exchange ratio in court. The company submits the draft terms, reports, and independent expert’s review to the RoC at least one month before the general meeting that will approve the conversion by special resolution. A notice is issued informing members, creditors, and employees of their right to comment on the draft terms.
The company then files an application with the Court in Cyprus to obtain a pre-conversion certificate, which includes the draft terms, reports, and an affidavit confirming the truth of the statements. This certificate is then transmitted to the destination Member State. Member states are obligated to ensure that their competent authorities do not issue a confirmatory certificate of compliance if it is determined that the operation has been arranged for abusive or fraudulent purposes to evade European or national law or for criminal purposes.
The existing provisions for the transfer of a company’s legal seat, known as redomiciliation, remain available, in cases where the conversion provisions would not be applicable, i.e. redomiciliation of a Cyprus company to a jurisdiction outside the EU and the opposite.
At Christys & Co LLC, Advocates and Legal Consultants, our expert legal team can assist your business in navigating the new conversion regulations, ensuring a seamless transition.
