Amendment of Articles of Association in Cyprus: Between Corporate Freedom and Abuse of Right – A Comparison with the Corresponding Regulation in Germany

Giorgos Kazoleas, Lawyer in Cyprus

The Articles of Association constitute the regulatory framework of a company, governing the internal relations between its members and management. Under Cyprus law, flexibility in adapting this document is vital, but it is not unchecked.


The Amendment Process (Section 12 of the Companies Law, Cap. 113)

Pursuant to Section 12 of the Companies Law (Cap. 113), a company may amend its articles of association by passing a Special Resolution, subject to compliance with the provisions of this Law and the conditions contained in the Company’s Memorandum of Association. The Company may amend specific articles or its articles of association in their entirety.

For the amendment to be valid, a majority of at least 75% of the members present and voting at the General Meeting is required, and the prescribed notice must have been given (typically 21 days, unless otherwise provided for private companies).

Subsequently, the company must submit the special resolution for the amendment of the constitutional document to the Registrar of Companies within fifteen (15) days from the date of the resolution.

Restrictions and the Presumption of "Good Faith"

Despite the legislative discretion, the right to amend is not absolute. Restrictions stem from both statutory law and common law.

The protection of Section 23 of the Companies Law

Section 23 of the Companies Law imposes a significant restriction, acting protectively so that a shareholder is not caught by surprise.

Notwithstanding anything stated in the memorandum or articles of association of the company, no member of the company is bound by alterations made to the memorandum or articles after the date on which they became a member, if such alteration requires them to:

  • Take or subscribe for more shares than the number held by them at the date on which the alteration was made, or
  • In any way increases their liability as of that date to contribute to the share capital of the company, or
  • Otherwise pay money to the company.

In the event that the member agrees in writing, either before or after the alteration, then they are bound, and the said provision does not apply.

Conflict with the Memorandum of Association

The Articles of Association are a secondary document relative to the Memorandum of Association. If a provision of the Articles conflicts with the Memorandum, the latter prevails.

Specific Restrictions on Amendments

To change the name of the Company, the approval of the Registrar of Companies is required. The Company must deliver notice of the change in the prescribed form to the Registrar within fifteen (15) days from the passing of the relevant resolution. The Registrar shall then enter the new name on the register in place of the former name and issue an altered certificate of incorporation (Section 19 of the Companies Law).

Relevant Case Law: The "Bona Fide" Criterion

Cyprus law faithfully follows English jurisprudential principles on this specific issue. The classic case is Allen v. Gold Reefs of West Africa Ltd [1900], in which the Court formulated the principle that an amendment must be made "bona fide for the benefit of the company as a whole."

The term "company as a whole" does not refer solely to the company as a legal entity, but to the body of shareholders as a collective.

In the case of Sidebottom v. Kershaw, Leese & Co Ltd [1920], an amendment allowing the buyout of shares held by a shareholder who was competing with the company was held to be valid, as it was deemed to be in the best interests of the business.

In Greenhalgh v. Arderne Cinemas Ltd [1951], it was clarified that an amendment is not invalid merely because it prejudices a specific shareholder, provided that a "hypothetical shareholder" would consider the alteration fair for the company.

In Cyprus, the case of Cypra Ltd v. Republic and other related cases confirm that the courts will intervene if the amendment constitutes oppression of the minority shareholders.

The Position Under German Corporate Law

German law (primarily through the AktG for Public Limited Companies [A.G.] and the GmbHG for Limited Liability Companies [GmbH]) follows a similar but more formalistic approach.

As in Cyprus, a majority of 75% of the represented capital is also required (Satzungsänderung).

Unlike Cyprus, in Germany, the resolution to amend the articles of association must mandatorily be notarized by a notary public.

German law places particular emphasis on the "duty of loyalty" (Treuepflicht) of shareholders toward one another. An amendment aimed solely at harming a shareholder is more easily annulled through the principle of loyalty, without the need to prove "malice" or "fraud" in the strict common law sense.

The amendment of the articles of association produces legal effects only from the moment of its registration in the Commercial Register (Handelsregister); it is, therefore, constitutive (konstitutiv) and not merely declaratory. 

Conclusion

The amendment of the articles of association is a powerful tool in the hands of the majority. However, the Companies Law and Cypriot jurisprudence—as shaped upon the foundational principles of English Case Law—set reasonable boundaries against potential phenomena of arbitrariness or abuse of right.

Giorgos Kazoleas is Lawyer - Managing Partner at Legal Experts Cyprus, tel. +357 22507666, email: gkazoleas@legalexpertscy.com, website: www.legalexpertscy.com


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