Social Enterprise Law Surveys |
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Cyprus |
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| (Europe) Firm Chrysostomides Advocates & Legal Consultants | |
| What jurisdiction(s) do you practice in? | The Republic of Cyprus |
| What are the most commonly used types of for-profit corporate organizational forms in your jurisdiction (e.g., corporation, limited liability company, benefit corporation, social purpose corporation, etc.) used by Enterprises operating a trade ... | The most commonly used type of for-profit corporate organization is the company of limited liability with shares, where the liability of each member (the holder of shares, or shareholder) is limited to the nominal value of the shares it has agreed to acquire. Once the members have paid for their shares, their liability towards the debts or liabilities of the company is discharged. Limited liability companies by shares can be private or public. The number of shareholders in a private company must not exceed 50 and there is no minimum share capital required. The number of shareholders in a public company must be at least 7 and the minimum share capital must be at least € 25.629. A company can also be limited by guarantee, in which case, the liability of each member is limited to the amount agreed in the memorandum of association to be contributed to the company in the event of the company going into liquidation. Companies limited by guarantee are non-profit making organizations. a. The limited liability company with shares, both private and public (as described above). b. There are no organizational forms specifically designed for Social Enterprises. In fact, the new Social Enterprises Law of 2020 Nº 207(I) (see response to Question I.4) refers to five different types of entities namely: (i) private companies limited by shares; (ii) private companies limited by guarantee ((i) and (ii) established under the Companies Law Cap 113); (iii) Cooperative Societies established under the Cooperative Societies Laws of 1985 to (No 2) of 2013; and (iv) General or; (v) Limited Partnerships as established under the Partnerships Law Cap 116. |
| Do any of your jurisdiction’s traditional organizational forms require or permit the board or managers to consider, balance or prioritize interests other than shareholder value in decision making? What other interests, if any, are they required... | The common law position under Cyprus law is that directors’ duties are strictly exercised in the best interest of the company The traditional organizational forms do not therefore require directors to consider the interests of any other party besides shareholders, but at the same time, it can be argued that they do not prohibit them from considering in parallel, the interests of other parties. Consequently, if the actions taken by directors also benefit others besides the company, in that sense, they may be able to consider or prioritize interests other than shareholder value in decision making. |
| Does your jurisdiction have organizational forms specifically designed for Social Enterprises? If so:a. What type(s) of organizational forms are they?b. How do they materially differ from the most closely analogous traditional organizational ... | There are no different organizational forms specifically designed for Social Enterprises. a. See response to Question I.2(b). b. N/A. c. None as of yet but the new law Social Enterprises Law of 2020 Nº 207(I,) makes provisions empowering the Council of Ministers to issue regulations exempting Social Enterprises from paying for fees, licenses, taxes or other forms of Governmental charges. In addition, the Council of Ministers is empowered to issue regulations regarding the granting of Governmental subsidies or other forms of benefits or contributions to Social Enterprises. d. A Social Enterprise can be included on the Register provided that, inter alia, it provides goods or services based on an entrepreneurship model according to which over 70% of its proceeds derive from an entrepreneurial activity and it applies predetermined procedures and rules concerning how it distributes profits in order to ensure its economic viability. Furthermore, it needs to be managed in an entrepreneurial, responsible and transparent manner, especially with the participation of the members, the workers and/or its customers, as the case may be, as well as of other interested parties who are affected by its entrepreneurial activity. In addition, it must implement policies concerning income and practices, so that the compensation of each senior management member, as well as the highest compensation received by any employee, will not exceed four times the compensation received by the lowest paid employee. e. No material differences in terms of timing, because Social Enterprises would use the same organization forms as traditional enterprises (Limited Liability Companies under the Companies Law, Cap 113 or Cooperative Societies under the Cooperative Societies Laws of 1985 to (No 2) of 2013). However, given the power of the Council of Ministers to issue various regulations under the Social Enterprises Law of 2020 Nº 207(I,) as mentioned in the response to Question I.4 (c) above, it is likely that the cost of setting up such a Social Enterprise will eventually be lower. f. At the time of writing, not at all prevalent, and awareness is likely to be very low as well. |
| Are Social Enterprises permitted to be formed and operated as Nonprofits? If so: a. Are Nonprofits that are Social Enterprises treated differently under the law as compared to Nonprofits that are not Social Enterprises, whether from a corporat... | There is no express prohibition to the formation of a Social Enterprise as a nonprofit organization in the Social Enterprises Law of 2020 Nº 207(I,). On the contrary, the fact that the new law mentions that Companies limited by guarantee may be used as the legal form of Social Enterprises, implies that Social Enterprises can be formed as nonprofit organizations since companies limited by guarantee are frequently used to set up non-profit organizations. a. Currently no, however, this may change if any new regulations are issued under the new law. b. See (a) above. c. N/A d. Most nonprofit organizations, many of whom can be described as Social Enterprises use the legal form of a company limited by guarantee as nonprofit making organizations. |
| Does your jurisdiction allow for worker-owned Enterprises, such as cooperatives? If so, please describe any material benefits of, and/or restrictions on, using such forms. | According to the Cooperative Societies Law of 1985 to 2013, worker-owned enterprises are impliedly allowed since one of the stated principles which a cooperative company should adopt is the organization and promotion of rural and worker credit and agricultural development, in the most beneficial provision of the necessary equipment for farmers and workers, in the better use of the natural resources and various other socioeconomic factors which ought to be taken into account. These principles would in principle also serve the benefits for workers. |
| Are there unique reporting requirements for Social Enterprises? If there are, please describe them. Please also discuss what government bodies Social Enterprises are required to report to. | The responsible government body Social Enterprises are required to report to is the Commissioner of the Authority of Cooperative Societies. Every Social Enterprise is responsible to notify the competent authority regarding any changes or modifications to the documents it has submitted, at the latest within 2 weeks from the date of the change or modification and more importantly when the Enterprise no longer meets the requirements for registration. In addition, financial statements prepared by an approved auditor for the previous financial year and a yearly report according to the provisions of the law should be submitted yearly to the competent authority. The aforementioned yearly report for the previous financial year should be submitted at the latest within 4 months after the end of the previous financial year. |
| In your jurisdiction, has case law and jurisprudence evolved to address Social Enterprises? If there is meaningful jurisprudence around Social Enterprises, please provide some brief examples. | No. The relevant law governing Social Enterprises was at the time of writing recently passed, so no case law is expected to be developed for quite some time. |
| Does your jurisdiction have any ESG requirements for Enterprises generally? If it does, please describe. | There are no requirements specific to this jurisdiction but Regulation (EU) 2019/2088 of 27 November 2019 (the “Disclosure Regulation”) which is described further below will apply from 10 March 2021 throughout the EU. |
| Does your jurisdiction have any ESG requirements specifically for Social Enterprises? If it does, please describe. | Yes, but the ESG requirement is not exclusive in the sense that it may be one (but not the only one) of the mission purposes of a Social Enterprise such as the promotion of social, cultural and or environmental action for the benefit of society. |
| Does your jurisdiction have any ESG requirements for investors? If it does, please describe. | The Disclosure Regulation is not aimed at retail investors but at asset managers. It is directly applicable throughout the EU and mandates disclosure obligations for manufacturers of financial products and financial advisers towards end-investors. It does so in relation to the integration of sustainability risks by financial market participants (ie asset managers, institutional investors…, all entities offering financial products where they manage clients’ money) and financial advisers in all investment processes and for financial products that pursue the objective of sustainable investment. Briefly, it will require ‘financial market participants’ to disclose and publish, inter alia, information about their policies on the integration of sustainability risks in their investment decision-making process or on the integration of sustainability risks in their investment advice or insurance advice. |
| Are any major investor classes (e.g., pension funds, mutual funds, etc.) required to look at ESG issues when making investment decisions in your jurisdiction? a. If they are, please describe the requirements.b. If they are not, are they permi... | Yes, pursuant to the Disclosure Regulation and in relation to the disclosures that the Regulation will require as of 10 March 2021. The definition of financial market participants set out in the Disclosure Regulation, and to which the Regulation applies, is quite wide and includes investment firms that provide portfolio management, Institutions for Occupational Retirement Provision, manufacturers of pension products, Alternative Investment Fund Managers, pan-European personal pension product providers and others. |
| What kinds of philanthropic funding do Social Enterprises in your jurisdiction commonly receive (e.g., grants, charitable investment, traditional investment)? | Not on a formalized basis. As there is no specialized financial instrument for Cypriot social enterprises, funding may be generated through charitable donations/private initiatives. Social Enterprises may benefit from funding that is made available through the Cyprus Entrepreneurship Fund (which is co-financed by the European Investment Bank and financial intermediaries/commercial banks) and the RESTART 2016-2020 Programme of the Research Promotion Foundation for Research Technological Development and Innovation. Financing of the European Regional Development Fund (ERDF)/ESF is also funneled through local grants to provide further support. |
| How prevalent, if at all, are new for-profit impact investments in your jurisdiction (e.g. traditional instruments with impact terms, new investment instruments, aggregation with philanthropic capital, community based funding, etc.)? | Not prevalent. |
| What are the types of government funding and support available to Social Enterprises, if any, available in your jurisdiction (e.g., grants, investments, bonds, and guarantees)? a. How difficult is it for Social Enterprises to obtain government... | Not on a formalized or institutionalized basis. Please refer to the answer in relation to Question II. 2 above. a. At the time of writing, too soon to tell pending the issue of regulations. b. See above. |
| Are there any companies that are formed as a Social Enterprise listed on your jurisdiction’s leading securities exchange(s)? | No. |
| To what extent are publicly traded Enterprises required to disclose ESG related factors in annual reports/public filings in your jurisdiction. | N/A |
| How prevalent, if at all, are impact bonds in your jurisdiction? | N/A |
| In your jurisdiction, are there any restrictions on foreign investments or donations that are unique to Social Enterprises (whether incorporated as for profit entities or as Nonprofits)? | N/A |
| Is “crowdfunding” legal in your jurisdiction? Are there rules under applicable securities laws that make it easier for smaller businesses or Social Enterprises to take money from investors that are not sophisticated/accredited/qualified under a... | Crowdfunding is legal but regulated by the Cyprus Securities and Exchange Commission (“CYSEC”). Any crowdfunding platform that provides “crowdfunding services in transferable securities” must first obtain the consent of the authorized by CYSEC and must comply with requirements mandated by CYSEC. These requirements are set out in directive DI87-10 issued by CYSEC. The directive in question does not provide a special regime that makes it easier for smaller businesses or Social enterprises to raise money from non-sophisticated investors. |
| Are there any tax exemptions that are uniquely available for Social Enterprises? a. Please describe any tax exemptions that are available and whether they are partial or full.b. Are they dependent on the Social Enterprise utilized using a spe... | None at the time of writing. |
| Are individuals or other organizations able to provide tax deductible donations to for-profit Social Enterprises? If they are, please describe any restrictions applicable to tax deductible donations? | Νο. We note that donations or contributions made by any person (individual or company) for educational, cultural or charitable purposes to a charitable institution in Cyprus, approved as such by the Council of Ministers, are deductible expenditures for the purpose of ascertaining the person's chargeable income. However, such companies need to be incorporated as non-profit making organizations in order to get approval from the Council of Ministers. |
| Are there any other tax benefits uniquely available for Social Enterprises? (e.g. deferrals, favorable tax rates, business deductions, etc.) | No, since Social Enterprises are not yet fully institutionalized, and we do not have new provisions as to their ‘tax benefits.’ |
| Does your jurisdiction provide for reciprocal recognition of tax-exempt status that has been granted under the law of any other jurisdictions? | No. |
| Does your jurisdiction have Regulatory Sandboxes or similar policy frameworks for Social Enterprises? If it does, please describe. | No. |
| What government operational support, resources, training or services, are available for small businesses or Social Enterprises? | None at the time of writing. |
| Are there different compliance requirements for different types of Social Enterprises than for traditional Enterprises? Please provide examples if there are. | See answer above to question I. 7. |
| Is there a dedicated government agency or department that oversees Social Enterprises? If there is, please describe its mandate and effectiveness. | The Commissioner of the Authority of Cooperative Societies. The Commissioner is empowered to set up and maintain a Social Enterprises Register and issue guidelines explaining and analyzing ways of implementing the legal prerequisites for establishing a Social Enterprise and also to carry out investigations to assert whether the requirements for the setting up of a SE are maintained. Regarding its effectiveness, it is too soon to tell given the recentness of the law. |
| Is there a different bankruptcy system available for Social Enterprises? | No. |
| What are the average time and filing fees to form an Enterprise in your jurisdiction? | For companies limited by shares, the company can be registered in 5-10 working days (expedited) or 8-12 weeks (non-expedited). The filing fees are usually €350. For other legal forms such as companies limited by guarantee or partnerships or cooperative societies, the times and fees vary. It is expected that the regulations to be issued under the new Social Enterprises Law No. 207(I)/2020 may reduce the registration fees regarding Social Enterprises. |
| What government or third-party certifications or accreditations, if any, are available for Social Enterprises that allow for access to benefits e.g. funding, beneficial tax status, etc.? Please provide examples and briefly describe them as well... | Not yet known. |
| Please describe whether, in your opinion, startups and other entrepreneurial Enterprises generally can easily form and flourish in your jurisdiction. | We believe that startups and other entrepreneurial enterprises can easily be formed and flourish in Cyprus. The legal, financial, technological and tax environment is mature and welcomes and supports new initiatives. |
| Please describe whether, in your opinion, Social Enterprises, in particular, can easily form and flourish in your jurisdiction. | Yes, but it is too soon to tell as we have yet to see the impact of the Social Enterprises Law No. 207(I)/2020 or assist in the formation of Social Enterprises. |
| Please describe whether in your opinion there are any laws that are obstructive to the formation of Social Enterprises (i.e. that actively disfavor or penalize, or otherwise discourage their formation) in your jurisdiction (for example, are Soc... | No opinion on the matter due to the lack of information and or experience. |
| In your jurisdiction, are there any major fraud concerns or defects due to corruption or fraud that should be addressed? If there are, please briefly discuss the concerns or defects. | No. |
| What changes to the law do you think would be most beneficial to enabling Social Enterprises to flourish in your jurisdiction? | Too soon to tell given the newness of the Social Enterprises Law No. 207(I)/2020 and the absence of any regulations or guidelines issued thereunder. |
| What changes to the law do you think would be most beneficial to enhancing the social and environmental responsibility of Enterprises generally (whether or not Social Enterprises)? | The Companies Law, Cap. 113 could be improved to better enhance the social and environmental responsibility of enterprises in general, by adopting provisions similar to, for example, section 172(d) of the UK Companies Act 2006 concerning directors’ duties to promote the success of the company. The aforementioned section provides that directors must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the impact of the company's operations on the community and the environment. |
| Is there anything else you would like to add or guidance you would like to provide? Are there any questions we should have asked but did not? | No. |
Social Enterprise Law Surveys
The Republic of Cyprus
The most commonly used type of for-profit corporate organization is the company of limited liability with shares, where the liability of each member (the holder of shares, or shareholder) is limited to the nominal value of the shares it has agreed to acquire. Once the members have paid for their shares, their liability towards the debts or liabilities of the company is discharged.
Limited liability companies by shares can be private or public. The number of shareholders in a private company must not exceed 50 and there is no minimum share capital required. The number of shareholders in a public company must be at least 7 and the minimum share capital must be at least € 25.629.
A company can also be limited by guarantee, in which case, the liability of each member is limited to the amount agreed in the memorandum of association to be contributed to the company in the event of the company going into liquidation. Companies limited by guarantee are non-profit making organizations.
a. The limited liability company with shares, both private and public (as described above).
b. There are no organizational forms specifically designed for Social Enterprises. In fact, the new Social Enterprises Law of 2020 Nº 207(I) (see response to Question I.4) refers to five different types of entities namely: (i) private companies limited by shares; (ii) private companies limited by guarantee ((i) and (ii) established under the Companies Law Cap 113); (iii) Cooperative Societies established under the Cooperative Societies Laws of 1985 to (No 2) of 2013; and (iv) General or; (v) Limited Partnerships as established under the Partnerships Law Cap 116.
The common law position under Cyprus law is that directors’ duties are strictly exercised in the best interest of the company The traditional organizational forms do not therefore require directors to consider the interests of any other party besides shareholders, but at the same time, it can be argued that they do not prohibit them from considering in parallel, the interests of other parties. Consequently, if the actions taken by directors also benefit others besides the company, in that sense, they may be able to consider or prioritize interests other than shareholder value in decision making.
There are no different organizational forms specifically designed for Social Enterprises.
a. See response to Question I.2(b).
b. N/A.
c. None as of yet but the new law Social Enterprises Law of 2020 Nº 207(I,) makes provisions empowering the Council of Ministers to issue regulations exempting Social Enterprises from paying for fees, licenses, taxes or other forms of Governmental charges. In addition, the Council of Ministers is empowered to issue regulations regarding the granting of Governmental subsidies or other forms of benefits or contributions to Social Enterprises.
d. A Social Enterprise can be included on the Register provided that, inter alia, it provides goods or services based on an entrepreneurship model according to which over 70% of its proceeds derive from an entrepreneurial activity and it applies predetermined procedures and rules concerning how it distributes profits in order to ensure its economic viability. Furthermore, it needs to be managed in an entrepreneurial, responsible and transparent manner, especially with the participation of the members, the workers and/or its customers, as the case may be, as well as of other interested parties who are affected by its entrepreneurial activity. In addition, it must implement policies concerning income and practices, so that the compensation of each senior management member, as well as the highest compensation received by any employee, will not exceed four times the compensation received by the lowest paid employee.
e. No material differences in terms of timing, because Social Enterprises would use the same organization forms as traditional enterprises (Limited Liability Companies under the Companies Law, Cap 113 or Cooperative Societies under the Cooperative Societies Laws of 1985 to (No 2) of 2013). However, given the power of the Council of Ministers to issue various regulations under the Social Enterprises Law of 2020 Nº 207(I,) as mentioned in the response to Question I.4 (c) above, it is likely that the cost of setting up such a Social Enterprise will eventually be lower.
f. At the time of writing, not at all prevalent, and awareness is likely to be very low as well.
There is no express prohibition to the formation of a Social Enterprise as a nonprofit organization in the Social Enterprises Law of 2020 Nº 207(I,). On the contrary, the fact that the new law mentions that Companies limited by guarantee may be used as the legal form of Social Enterprises, implies that Social Enterprises can be formed as nonprofit organizations since companies limited by guarantee are frequently used to set up non-profit organizations.
a. Currently no, however, this may change if any new regulations are issued under the new law.
b. See (a) above.
c. N/A
d. Most nonprofit organizations, many of whom can be described as Social Enterprises use the legal form of a company limited by guarantee as nonprofit making organizations.
According to the Cooperative Societies Law of 1985 to 2013, worker-owned enterprises are impliedly allowed since one of the stated principles which a cooperative company should adopt is the organization and promotion of rural and worker credit and agricultural development, in the most beneficial provision of the necessary equipment for farmers and workers, in the better use of the natural resources and various other socioeconomic factors which ought to be taken into account. These principles would in principle also serve the benefits for workers.
The responsible government body Social Enterprises are required to report to is the Commissioner of the Authority of Cooperative Societies. Every Social Enterprise is responsible to notify the competent authority regarding any changes or modifications to the documents it has submitted, at the latest within 2 weeks from the date of the change or modification and more importantly when the Enterprise no longer meets the requirements for registration.
In addition, financial statements prepared by an approved auditor for the previous financial year and a yearly report according to the provisions of the law should be submitted yearly to the competent authority. The aforementioned yearly report for the previous financial year should be submitted at the latest within 4 months after the end of the previous financial year.
No. The relevant law governing Social Enterprises was at the time of writing recently passed, so no case law is expected to be developed for quite some time.
There are no requirements specific to this jurisdiction but Regulation (EU) 2019/2088 of 27 November 2019 (the “Disclosure Regulation”) which is described further below will apply from 10 March 2021 throughout the EU.
Yes, but the ESG requirement is not exclusive in the sense that it may be one (but not the only one) of the mission purposes of a Social Enterprise such as the promotion of social, cultural and or environmental action for the benefit of society.
The Disclosure Regulation is not aimed at retail investors but at asset managers. It is directly applicable throughout the EU and mandates disclosure obligations for manufacturers of financial products and financial advisers towards end-investors. It does so in relation to the integration of sustainability risks by financial market participants (ie asset managers, institutional investors…, all entities offering financial products where they manage clients’ money) and financial advisers in all investment processes and for financial products that pursue the objective of sustainable investment.
Briefly, it will require ‘financial market participants’ to disclose and publish, inter alia, information about their policies on the integration of sustainability risks in their investment decision-making process or on the integration of sustainability risks in their investment advice or insurance advice.
Yes, pursuant to the Disclosure Regulation and in relation to the disclosures that the Regulation will require as of 10 March 2021.
The definition of financial market participants set out in the Disclosure Regulation, and to which the Regulation applies, is quite wide and includes investment firms that provide portfolio management, Institutions for Occupational Retirement Provision, manufacturers of pension products, Alternative Investment Fund Managers, pan-European personal pension product providers and others.
Not on a formalized basis. As there is no specialized financial instrument for Cypriot social enterprises, funding may be generated through charitable donations/private initiatives.
Social Enterprises may benefit from funding that is made available through the Cyprus Entrepreneurship Fund (which is co-financed by the European Investment Bank and financial intermediaries/commercial banks) and the RESTART 2016-2020 Programme of the Research Promotion Foundation for Research Technological Development and Innovation. Financing of the European Regional Development Fund (ERDF)/ESF is also funneled through local grants to provide further support.
Not prevalent.
Not on a formalized or institutionalized basis. Please refer to the answer in relation to Question II. 2 above.
a. At the time of writing, too soon to tell pending the issue of regulations.
b. See above.
No.
N/A
N/A
N/A
Crowdfunding is legal but regulated by the Cyprus Securities and Exchange Commission (“CYSEC”). Any crowdfunding platform that provides “crowdfunding services in transferable securities” must first obtain the consent of the authorized by CYSEC and must comply with requirements mandated by CYSEC.
These requirements are set out in directive DI87-10 issued by CYSEC. The directive in question does not provide a special regime that makes it easier for smaller businesses or Social enterprises to raise money from non-sophisticated investors.
None at the time of writing.
Νο. We note that donations or contributions made by any person (individual or company) for educational, cultural or charitable purposes to a charitable institution in Cyprus, approved as such by the Council of Ministers, are deductible expenditures for the purpose of ascertaining the person's chargeable income. However, such companies need to be incorporated as non-profit making organizations in order to get approval from the Council of Ministers.
No, since Social Enterprises are not yet fully institutionalized, and we do not have new provisions as to their ‘tax benefits.’
No.
No.
None at the time of writing.
See answer above to question I. 7.
The Commissioner of the Authority of Cooperative Societies. The Commissioner is empowered to set up and maintain a Social Enterprises Register and issue guidelines explaining and analyzing ways of implementing the legal prerequisites for establishing a Social Enterprise and also to carry out investigations to assert whether the requirements for the setting up of a SE are maintained. Regarding its effectiveness, it is too soon to tell given the recentness of the law.
No.
For companies limited by shares, the company can be registered in 5-10 working days (expedited) or 8-12 weeks (non-expedited). The filing fees are usually €350.
For other legal forms such as companies limited by guarantee or partnerships or cooperative societies, the times and fees vary. It is expected that the regulations to be issued under the new Social Enterprises Law No. 207(I)/2020 may reduce the registration fees regarding Social Enterprises.
Not yet known.
We believe that startups and other entrepreneurial enterprises can easily be formed and flourish in Cyprus. The legal, financial, technological and tax environment is mature and welcomes and supports new initiatives.
Yes, but it is too soon to tell as we have yet to see the impact of the Social Enterprises Law No. 207(I)/2020 or assist in the formation of Social Enterprises.
No opinion on the matter due to the lack of information and or experience.
No.
Too soon to tell given the newness of the Social Enterprises Law No. 207(I)/2020 and the absence of any regulations or guidelines issued thereunder.
The Companies Law, Cap. 113 could be improved to better enhance the social and environmental responsibility of enterprises in general, by adopting provisions similar to, for example, section 172(d) of the UK Companies Act 2006 concerning directors’ duties to promote the success of the company. The aforementioned section provides that directors must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the impact of the company's operations on the community and the environment.
No.