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8 November 2023

How to Buy and Sell a Business in Cyprus?

There are two options for setting up a business in Cyprus: to set up a new company or to buy an already registered company.

Non-residents of Cyprus can buy a pre-registered business on the same basis as residents.

Some Cypriot pre-registered shell companies or shelf companies have no assets or liabilities and have never been involved in any business activity. At the same time, others may have an economic history. The purpose of registering such a company is only to sell it. The popularity of ready-made shell companies is due to their use to protect their assets, as well as the speed of incorporation. However, it is not uncommon for clients to change directors, registered office, company name, or auditor when buying a company.

Buying a shell company in Cyprus

In Cyprus, shell companies are registered in the name of a nominee shareholder, so when purchasing, all powers are transferred to the new owner by a notarial power of attorney and declaration of trust if all shares remain in the name of the nominee shareholder. The shares can also be transferred to the new owner. Compared to starting a new business, acquiring a Cypriot shell company can be more advantageous for the following number of reasons:

The possibility of express incorporation. This is the quickest way to get a business up and running when time is of the essence.

The buyer gets access to the history of the company and decides if it is suitable for him.

Its acquisition is very fast and its registration can be done on the same day because the company is already established.

It already has a registered name in the Cyprus Companies Registry.

The history of the company's existence, as it has already been registered before. In this case, companies with a longer existence history are preferred and can add prestige to the business history.

After VAT registration (whether mandatory or voluntary), a company can also obtain an Entrepreneur Registration and Identification Number (EORI) in Cyprus. EORI is a unique identification number used in the customs territory of the European Union and assigned by customs authorities to an entrepreneur or other person for registration for customs purposes. The EORI number is mandatory for participants in foreign economic activities engaged in import, transit, export, or other customs procedures.

Advantages of buying a shell company in Cyprus

Shell companies in Cyprus offer investors the advantage of saving the time required to register a new company. The procedure for registering a new business in Cyprus will take longer than purchasing a shell company, allowing the business to start almost immediately.

Purchasing an existing business

Buying an existing business involves acquiring a company that is already engaged in a particular activity, and has a customer base, assets, and liabilities. The purpose of such a transaction is usually related to developing an existing business activity or entering a new market. Buying a going concern requires more thorough preparation, including due diligence and business valuation. The process can take longer and requires more detailed analysis. In the case of an existing business, its long-term viability and reputation in the marketplace is important. The success story, its customers, liabilities, and assets of the company are evaluated. Buying an existing business entails more complex legal and tax aspects, as it requires analysis of contracts, licenses, tax obligations, and other documents. And, of course, the price will be very different from the cost of buying a shell company.

How to choose the right company to buy?

Companies for sale in Cyprus can be found on internal websites, local business magazines, and directories. Also, large service companies related to the corporate sector often hold a portfolio of ready-made shell companies for sale. Before entering into a Sale and Share Purchase Agreement (SPA) to acquire a company, the buyer is advised to engage a Cypriot lawyer to conduct due diligence on the target company. This will enable the buyer to identify any encumbrances on the shares, improprieties in the appointment of officers, existing powers of attorney, and contracts to which the target company is tied. It will also confirm that the seller has a clean title to the shares being transferred in the transaction and confirm that the company is in good standing. In addition, it should be assessed whether there are other shareholders who may have rights of first refusal and must waive such rights prior to the intended transfer of share ownership.

Selling a business in Cyprus

The sale of an existing company with an existing business in Cyprus by way of a share transfer is a serious and strategic transaction that requires careful preparation and evaluation. The owners of a company may decide to sell their business for various reasons, whether it is a strategic reallocation of assets, a desire to take on new projects or to transfer the company to more competent hands. The process involves several key steps, starting with the valuation of the company and the search for interested buyers, and concluding with negotiations, legal formalities, and the transfer of control.

Tax on the sale of a share in a company

The transfer of shares in a Cypriot limited liability company is exempt from tax, provided that these companies do not have immovable property located in Cyprus. When considering the sale and purchase of shares in a private Cypriot company, it is usual for the parties to enter into an SPA.

It should be noted that an SPA is not required under Cypriot law and shares can be transferred by a signed and dated instrument of transfer between the seller and the buyer. However, the parties may wish to impose conditions on the transfer of shares, as well as various guarantees and other conditions. There may also be a situation where, on the sale/purchase of shares, new officers are appointed, the registered office is changed and the company documents are transferred to a new company secretary. In such a case, it is also advisable to revoke existing powers of attorney.

Procedure for transfer of shares

In Cyprus, the normal procedure for transferring shares in a private company is quite simple and straightforward. If the parties have no commercial or other reason to enter into a SPA, it is possible to avoid the verification and drafting of the SPA, thereby reducing the time and associated costs.

In the case of a straightforward transfer, a lawyer will check the articles of association of the company to ascertain the rules governing the transfer of shares in the company and assess whether shareholders have rights of first refusal. If such rights are included in the articles of association, the existing shareholders must waive them and a share transfer document will be signed by the seller and the buyer. The seller will return the share certificates to the company for cancellation and the board of directors will approve the transfer.

The company secretary will then enter the seller in the company's share register. The transfer will then become effective and ownership of the shares will pass from the seller to the buyer. The company secretary will issue new share certificates, naming the purchaser as the owner, and notify the Cyprus Registrar of Companies of the transfer by filing form HE57. The Registry will also issue a new share certificate.

The acquisition or sale of a business in Cyprus will go smoothly, provided that careful preparation, risk assessment and due diligence have been carried out. It is important to use experienced professionals such as lawyers and accountants who are familiar with local legislation and can provide the necessary support. Deciding whether to sell or acquire a business is an important strategic step, and following all stages of the transaction correctly will ensure success and protect your interests. Whether you are buying or selling a business, thorough preparation, documentation and professional advice will make the process less complicated and more successful.

Read also:

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  3. Why do IT specialists move to Cyprus?
  4. Top 5 Spa Hotels in Cyprus
  5. Design for Sustainable Development: Eco-Friendly Office Space in Cyprus
  6. How to Check the Legal Integrity of a Residential Property Before Buying in Cyprus?
Source: DOM

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