Malta: Business Entities Available

Sole Proprietor

This type of business entity is the least regulated and is subject to the least number of formalities in terms of Maltese law. The sole requirement to commence operation is to obtain a trading licence and one may commence operation immediately. The trader will be trading in his own name and therefore does not benefit from separate legal personality in any manner and is therefore personally responsible for all the trading obligations. Also tax liability is calculated on the individual tax rates of the proprietor.

The principal advantages of this business entity include the flexibility of the operation, no restrictions on decision-making and almost no reporting requirements.

Corporate Entities

Malta's law related to companies is regulated by the Companies Act (Chapter 386 of the Laws of Malta), which was founded on the British Companies Act and the Insolvency Act, however it has been amended to ensure compliance with applicable EU Directives. The Registrar of Companies is the official that ensures Maltese companies are in compliance with the Companies Act. The Registry of Companies is located within the premises of the Malta Financial Services Authority, helping to ensure that financial service practitioners in Malta may seek to all they need from local officials at a single venue.

Maltese law provides for several forms of corporate entities, but the most frequent form of business entity is by far the limited liability company, which may have the status of a public or private company, furthermore private companies may be either exempt or non exempt. Limited liability companies may also be registered as investment companies with variable share capital (SICAV) or investment companies with fixed share capital (INVCO). Limited liability companies carrying out the business of insurance may also be registered as/or converted into a protected cell company (PCC).

Apart from the limited liability company, the Companies Act also provides for the possibility of an additional two types of partnerships – the partnership en nom collectif wherein the partners are unlimitedly liable for the obligations of the partnership with their personal assets and the partnership en commandite which consists in general partners with unlimited liability together with limited partners whose liability will be limited to their contribution to the partnership.

The Private Limited Liability Company

The private limited liability company has "Limited" or "Ltd" suffixed to its name. The entity is created by submission of the Memorandum and Articles to the Registrar (both English and Maltese) together with the appropriate fee. Provided that all the necessary documentation is in hand, incorporation of such a company normally takes between twenty-four and forty-eight hours while shelf companies are not available.

Fees payable to the Registrar of Companies on incorporation are calculated according to the authorised share capital of a company, with the minimum share capital of a private limited liability company amounting to € 1,164.69 subscribed by at least two persons and 20% paid up, while that of a public limited liability company must be at least € 46,587.47 subscribed at least by two persons and 25% paid up.

Directors

Companies must appoint at least one director and one company secretary. The director may be a corporate entity but the company secretary must be an individual. As a rule, a sole director cannot occupy the post of company secretary as well unless the company is a single member company and has an 'exempt' status.

Directors manage all the business of the company to the exclusion of business that falls within the competence of general meetings.

The number of directors and the identity of the first directors of a company are to be specifically included in the company's Memorandum of Association. Subsequent directors are appointed by ordinary resolutions at general meetings. Directors may either resign or be removed or not have their terms renewed. A director is removed by an ordinary resolution taken at a general meeting of the company.

Public Securities

In order for a company's securities to be listed on the Malta Stock Exchange, the company must have the legal status of a public company.

A private company may change its status to a public company by an extraordinary resolution altering its memorandum or articles and incorporating in such alteration all those changes required by the Companies Act for a company to hold the status of a public company, including the removal of the restrictions on share transfers. The revised memorandum and articles of association must be delivered to the Registrar for registration.

Registration Requirements for Public Securities

The basic requirements for a listing are:

• Shareholders funds less intangibles of at least Euro 582,599;
• Paid-up Capital of at least Euro 233,000;
• Twenty percent of the issued, fully paid-up Capital in the hand of the general public;
• Three year trading record;
• Flotation limit of at least Euro 233,000 in the case of equities and Euro 2,330,000 in the case of bonds (ordinarily a company must list its shares before allowed to list its bonds but the Council of the Malta Stock Exchange may grant a derogation from this requirement);
• Adequate profit forecast;
• Shares must be freely transferable;
• Financial information; Acceptable level of risk attached;
• Adequate Capital;
• Sufficient management resources;
• Suitable Memorandum and Articles of Association;
• Absence of conflict of interest; and
• Expected to enjoy continuity of dealing.

The Listing Particular Document (or Prospectus) contains:

• The Directors' Responsibility statement
• Corporate History (business activity, market spread, product/quality control)
• Trading Record (current trading, prospects)
• Risk Factors
• Financial Information (Consolidated Profit and Loss Accounts , Balance Sheets, Source and Application of Funds, Statement regarding Accounting policies, Dividend forecast, Earnings per share)
• Particulars of Directors, Senior Management and Employees including Sponsoring Stockbroker, Financial Adviser, Auditor, Legal Adviser, Bankers
• Additional Information (Subsidiary Companies, Working Capital Statement, Premises,- Directors and other interest, Services Contract/Material Contracts, any issues subject to litigation, Taxation outstanding and forecasted
• Documents available for inspection (Memorandum and Articles of Association, Services Contracts, Material Contracts, Audited Consolidated Accounts, List of Shareholders and an analysis of holdings)
• Extract from Board Minutes with relevant resolutionThe company must also provide the Stock Exchange with:
• Date fixed for any Statutory Board Meeting to announce results and / or dividends;
• What resolutions are going before that Meeting and later whether carried or not;
• Changes to the Memorandum and Articles of Association;
• Changes to the Management Structure;
• Half-yearly report: i.e. Financial in summary form with an indication of trading performance of last six months
• Preliminary Profit Statement after Audit;
• Annual Report with detailed requirements regarding underlying policies;
• Any Price-sensitive information that the Market must know;
• Information relating to acquisitions, expansions, disposal and / or restructures.

The various advantages offered by having one's securities listed on the Malta Stock Exchange, include the following:

• Expansion of access to capital;
• The increase of employee commitment and recruiting power;
• The complementing of product marketing;
• The expansion of business relationships;
• Flexibility in personal financial planning;
• There are also taxation benefits.

When a company acquires the status of a quoted company, the rate of income tax chargeable on the gains or profits arising to it shall be reduced in respect of the said gains or profits so arising in the year in which it acquires the status of a quoted company and in the subsequent two years as follows:

• by two percentage points if 20% or more but less than 30% of its issued voting share capital is offered to the public as a listed security;
• by 3.5 percentage points if 30% or more but less than 40% of its issued voting share capital is offered to the public as a listed security;
• by five percentage points if 40% or more of its issued voting share capital is offered to the public as a listed security.

The above tax benefits are not available for bond issues. However a bond listed on the Malta Stock Exchange is exempt from capital gains tax upon disposal by an investor.

The Single Member Company

The Companies Act also provides for an exception to the general rule that each limited liability company must have at least two shareholders – this is in the form of a single member company. A single member company is subject to additional restrictions provided in the Companies Act including that it must specify its main trading activity. There are also additional specific conditions on shareholders (mainly that shareholders must be individuals and directors may not be corporate entities.

Continuation of Companies

Following Legal Notice 344 of 2002, it became possible to continue the existence of a company incorporated or constituted outside of Malta to transfer its domicile to Malta – this will entitle such entities to be fully regulated by Maltese law therefore benefiting from the relevant advantages. In order to perform such re-domiciliation there are certain conditions that must be met, namely:

• The entity must be a corporate body
• The original jurisdiction must be an approved jurisdiction in terms of the said Legal Notice
• The laws of its original jurisdiction must permit the entity to transfer its jurisdiction
• The constitutional document of the entity must permit the transfer of its domicile

Once these conditions are met, there is a specific procedure that must be followed and the entity will continue to exist under Maltese law. All rights & obligations of the entity vis-à-vis third parties existing at the date that were regulated under the regime of original jurisdiction shall remain in effect after the redomiciliation is completed – hence continuation of the original entity under Maltese law.

Shipping Companies

Shipping companies are regulated by Legal Notice 223 of 2004 the Merchant Shipping (Shipping Organisations – Private Companies) Regulations issued under the Merchant Shipping Act.

There are many advantages to registering shipping companies inMalta, but the major ones are that such entities enjoy a complete tax exemption to owners, charterers and financiers of Maltese ships of over 1,000 net tons (this exemption may be extended to smaller ships) no restrictions on the nationality of shareholders and/or directors of Maltese shipping companies, nor of the ship's master, officers and crew, no trading restrictions, low company registration and formation costs and no restrictions on the sale and mortgaging of Maltese ships.

Branch of a Foreign Company

An overseas company that establishes a branch in Malta must register an authentic copy of its incorporation document (either in English or Maltese) with the Registrar of Companies within one month of its establishment. A branch does not have a separate legal personality from the overseas company nor is there any requirement for reincorporation in Malta. Following amendments to Maltese tax legislation in 2007, branches of overseas companies are now treated in the same manner as Maltese registered companies – they will however need to submit audited accounts for the branches operations to be so entitled.

Non-Resident Shareholders

Since 1994 Malta has allowed shareholders of certain companies an effective tax rate of 4.17%. This was achieved through a series of tax refunds based on the dividends a company distributed to its shareholders and was known as the International Trading Company (ITC) regime. In March 2006, the EU Commission formally requested Malta to abolish the regime. In 2006 Malta reached agreement with the European Commission that effectively preserves intact its competitive imputation tax system for business in Malta. The proposal, which was developedby the Maltese Government, extends the refundable tax credit system to all Maltese companies and shareholders. This important agreement ensures Malta's future ability to continue to be an attractive and competitive environment for international business and investment. Such an agreement thus abolished the ITC regime and introduced a new tax refund system. Such a new tax refund system does not constitute a complete departure from the old ITC regime. It is based on the same concepts, but has been revamped to remove its ring-fenced benefits and the discrimination against shareholders resident in Malta.

Partnership En Nom Collectif

As stated above, the main differentiating feature of the partnership en nom collectif is that the partners are unlimitedly liable for the obligations of the partnership with all their property, present and future and not limited to their contribution to the partnership (unlike the limited liability company). Before the partnership's creditors may attack the personal assets of the partners, they must first exhaust all the assets of the partnership itself. Amongst the partners themselves, the obligations of the partnership are settled in proportion to the partner's respective contributions. Any partner who has settled more than his share may have recourse against the others for such excess. Two or more partners may form the partnership en nom collectif and the government fees for setting a partnership up are the same as those applicable to limited liability companies. There are some minor running advantages with respect to partnerships in comparison to limited liability companies. Mainly, they are neither bound to submit an annual return nor do they have to file accounts to the Registry of Companies.

Partnership En Commandite

A partnership en commandite may be considered to be a hybrid between a limited liability company and a partnership en nom collectif – as this type of partnership is formed by both general partners who are unlimitedly liable for the obligations of the partnership with all their property, present and future and not limited to their contribution to the partnership, and limited partners whose liability is limited to any unpaid amount of their contribution to the partnership. As in the partnership en nom collectif, before the partnership's creditors may attack the personal assets of the partners, they must first exhaust all the assets of the partnership itself. There are two types of partnership en commandite, being either an ordinary partnership where the contribution of the partners are provided for in terms of their proportion of interest, or a partnership with the partner's contribution being divided into shares.

Civil Partnerships

It is also possible for two or more persons to create a partnership under the Civil Code. Partners will not be jointly and severally liable for the debts of the partnership and one partner cannot bind the others unless the others so have granted authority to do. The partnership's objectives must be lawful and the scope of such a partnership is to share a benefit that they derive there from. There are no registration requirements, nor are there any disclosure requirements for civil partnerships. The partners must contribute money, property or skill and will be entitled to receive their share of the benefits as agreed in the partnership agreement.

Co-operatives

A Co-operative is another type of business entity that is possible under Maltese law, however this entity is not widely used. The legal setup for such organisations was provided for in the Co- Operative Societies Act, 2001. A minimum of seven members may form a co-operative and this may have any lawful object clause desired by the members. The Co-operatives Board whose main function is to guide, assist and manage the co-operative supervises the administration of co-operatives. The principal advantage of a co-operative is that all profits earned by the cooperative are not subject to tax while they remain in the hands of the co-operative.

Joint Ventures

When two or more parties undertake an economic activity together, they may opt to create a new entity known as a joint venture. In order to create this new entity, all parties must contribute equity and share in the revenues, expenses and control of the enterprise. A joint venture may be created for one specific project or for the continuation of a business relationship. The terms of a joint venture are generally set out in a contract or other binding arrangement and usually specify the initial contribution from each joint venture and the share of revenues or other benefits (if any), and expenses of each of the joint venture.

As a structure, a joint venture can take the form of a corporation, a limited liability company a partnership or other legal structure that is permitted within one's jurisdiction. A joint venture can be set up between two or more local companies. However it is common to see a joint venture created between a local company and a foreign company in order for the foreign company to have geographical presence and for the companies to complement their skills.

The main aim as to why an agreement is entered into whereby two or more undertakings will agree to co-operate is generally done with a view to profit. Although it is common that a new enterprise will be created for joint venture purposes, the joint venture may also be directed at enhancing the efficiency of an existing activity. Here, the simplest form of joint venture is where the parties decide to retain their own independence and base their co-operation entirely upon contract.

Owing to the fact that a joint venture comprises in the cooperation between two or more undertakings, there is no doubt that competition law implications may arise. The prohibitions laid down in Articles 5 and 9 of the Competition Act (Chapter 379 of the Laws of Malta) are also applicable to joint ventures. Whilst the said Articles prohibit agreements and practices reached between undertakings in Malta, joint ventures must also abide by Article 81 and 82 of the EC Treaty, which are equivalent to local legislation, but apply where there is other member states' involvements.

The Business Promotion Act (Chapter 325 of the Laws of Malta), which provides incentives for those industries demonstrating growth and employment potential that are engaged in manufacture, repair, improvement or maintenance activities, and which Act provides fiscal incentives to qualifying companies with tax rates as low as 5% for a given number of years, also provides for joint ventures by giving such entities advantages so as to be recognised as such a company.

Trusts

Although Malta is essentially a civil law jurisdiction, the legislator has introduced the concept of Trusts over time. Trusts were originally limitedly available to non- residents with very advantageous benefits and it is only since 2004 that the setting up of trusts in Malta has been made available to both residents and non-residents. Today the Trusts and Trustees Act regulate the Trusts. A trust is an obligation, which binds a person or persons (called the trustee) to deal with property of which the trustee is deemed to be the legal owner (called the trust property) for the benefit of persons (called the beneficiaries) or for a charitable purpose in accordance with the terms of the trust. In terms of Maltese law, a trust is an example of a fiduciary relationship between the Settler and the Trustee whereby the settler transfers his property to the trustee who shall act in terms of the trust deed. Due to this fiduciary nature of trusts, a trustee must be licensed to act as such in terms of the Trusts and Trustees Act except in certain limited cases provided by law.

Audit Requirements and Practices

Auditors require a warrant in order to practice their profession in Malta. It is first necessary that one completes the required course at the University of Malta or obtains an equivalent to the degree of a B. ACC. An equivalent to the said degree in the international sphere is the A.C.C.A. programme.

Once such a level of education is reached, a warrant to carry out the functions of an auditor may be obtained after two years of practice in the said office.

Auditors are bound to abide and comply with the Accountancy Profession Act, as well as the Accountants and Auditors Code of Ethics

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.