Different types of Commercial

Partnerships, Incorporation of a Limited Liability Company

Mr Joseph H Caruana

Registrar of Companies

• Sole trader

• Private partnership

• Partnerships en nom collectif/ en commendite

• Limited liability companies

How can business be undertaken?

Partnership en nom collectif

• formed by two or more partners

• operates under a partnership name and has its obligations

guaranteed by the unlimited and joint and several liability of all

the partners

• at least one of the partners shall be either an individual or a

body corporate which has its obligations guaranteed by the

unlimited and joint and several liability of one or more of its

members

• a deed of partnership is entered into and signed and a

certificate of registration is issued by Registrar under

Companies Act

• deed can be enrolled in the records of a Notary – authentic

copy delivered to Registrar

Partnership en nom collectif

The deed of partnership shall state:

(a) the name and residence of each of the partners;

(b) the partnership-name;

(c) the registered office in Malta of the partnership;

(d) the objects of the partnership;

(e) the contribution of each of the partners, specifying the value of

the respective contribution of every partner;

(f) the period if any fixed for the duration of the partnership.

Partnership en commandite

• A partnership en commandite operates under a partnership

name and has its obligations guaranteed by the unlimited

and joint and several liability of one or more partners,

called general partners, and by the liability, limited to the

amount, if any, unpaid on the contribution, of one or more

partners, called limited partners.

• At least one of the general partners shall be either an

individual or a body corporate which has its obligations

guaranteed by the unlimited and joint and several liability

of one or more of its members.

Partnership en commandite

• Deed to specify which of the partners are general partners

and which are limited partners

• Capital may be divided into shares

• The administration and representation of the partnership en

commandite or limited partnership vests in the general

partners, and unless the deed of partnership otherwise

provides, such administration and representation shall vest in

each of the general partners severally

Partnerships : advantages

• Distinct legal personality

• Recognition in Companies Act

• More freedom of contract

• Less costly to keep and wind up

Total number registered since origins of

commercial law in Malta :

� Partnerships en nom collectif 1,450

� Partnerships en commendite 100

� Limited Liability Companies 62,000

How did companies come to exist?

� With introduction of limited liability concept, passive investors could afford to risk capital with entrepreneurs. This unlocked vast sums previously put in safe investments; opened the way to finance the increasing capital needs of the new railways and factories that were to transform the world.

�Before limited liability, shareholders risked going

bankrupt if their company did.

� Industrial revolution - Need for large amounts of

capital

CONCEPT OF LIMITED LIABILITY

� Creditors of the company have recourse to all its

assets – company itself does not have limited

liability

� Creditors of company can only claim on company.

If company’s assets are insufficient, creditors

cannot claim against shareholders personally. But

directors who act with wrongful or fraudulent

intent risk personal liability.

OTHER ADVANTAGES OF A COMPANY

• Legal existence separate from management and

members. May own property, enter into

contracts, hold bank accounts - in its own name

• Continuity (may survive hundreds of years)

• Building of goodwill over years

• Brands

• Borrowing from banks is usually easier

Formation & Function of Companies

• By means of capital divided into shares held by members (shareholders) whose liability is limited to any amount unpaid on shares held by them

• Memorandum & Articles of Association signed by all the shareholders

• The Memorandum concerns external affairs– contains important information on company

– of interest to third parties

– Registrar must be satisfied that it complies with CA requirements

• The Articles concern internal affairs– contains internal rules

– primarily of interest to directors and shareholders

– Shareholders are responsible for its correctness

• First Schedule applies if no Articles are registered

Memorandum must contain:

� Name of company and registered office in Malta

� Whether private or public company

� Name and residence of subscribers (shareholders)

� Objects of the company – must be specified

� Amount of authorised share capital and division into shares – at least:� Eur46,688 25% paid up – public company

� Eur1,165 20% paid up – private company

� Number of shares taken up by each subscriber and amount paid up on each share

� Rights attaching to each class of shares, if more than one class

� Number of directors, names and residential addresses

� The manner of representation of company and names of persons vested with representation

� Name and residence of company secretary (individual)

� Period, if any, fixed for duration of company

�International standards require that measures are taken to prevent the use of legal persons for money laundering and terrorist financing – FATF Recommendations

�The Registrar has a role to play in safeguarding Malta’s reputation and in contributing to Malta’s AML/CFT efforts

�CA95 requires memorandum to contain names, residential addresses and official identification document numbers of shareholders, directors, company secretary

Registrar requires:

�copies of identification documents

�copies of certificates of registration / good standing

�bank or other references (non-EU owners)

�other documentation as appropriate

�declaration from trustees / nominees where acting as trustee / nominee shareholders

Duties/responsibilities of

Company Directors

COMPANY DIRECTORS

• The directors are generally responsible for the management

of the company and they may exercise all the powers of the

company. However, the extent of their authority may be

constrained by the Companies Act and the articles of

association. For example, articles of association often include

provisions and restrictions on borrowing by the company.

• Generally, the directors must act collectively as a board to

bind the company. However, the articles usually entitle the

board to delegate powers to individual directors as considered

appropriate. In practice individual directors will normally carry

out many of the company’s activities.

COMPANY DIRECTORS

� Any person occupying the position of director

by whatever name he is called, and carrying

out functions in relation to the direction of the

company

� Shadow Director - a person in accordance with

whose directions or instructions the directors

of the company are accustomed to act

� The first director/ s is/are appointed by the shareholders who form the company.

� Directors are often shareholders or company employees, but do not have to be.

Art. 139 : A person shall not be capable of beingappointed director of a public company unless he haspersonally, or by his agent authorised in writing,signed the memorandum indicating his consent to actas a director or has otherwise signed and delivered tothe Registrar for registration a consent in writing toact as such director.

Who may act as director ?

Anyone may act as Director unless

� interdicted, incapacitated or undischargedbankrupt

� convicted of crimes against public trust, theft, fraud or knowingly receiving property obtained by theft or fraud

� subject to disqualification order

� a minor

Duties of Company Directors

Companies Act 1995 introduced (in 2003, art. 136A) a clear

statement of the general duties of directors.

They are bound by law to :

� Act honestly and in good faith in the best interests of the

company;

The company comes first. A director must act in the interests of

the company and not in the interests of any other parties –

including shareholders. This applies even for single- member

companies, which means a sole shareholder or director may not

put their interests above that of the company.

Even when appointed by a class of shareholders – responsibility of

director remains to company as a whole

Duties of Company Directors

• Promote the well-being of the company : responsible

for general governance and proper administration of

company and general supervision of its affairs

� to exercise the degree of care, diligence and skill which would

be exercised by a reasonably diligent person having both -

i. the knowledge, skill and experience that may reasonably be

expected of a person carrying out the same functions as are

carried out by or entrusted to that director in relation to the

company; and

ii. the knowledge, skill and experience that the director has.

The test of an acceptable degree of care is what a reasonable

person would do in looking after their own affairs.

Prof. Bernard Black : ‘the duty to pay attention and to try to make good

decisions’

• not make secret or personal profits from their position

without the consent of the company, nor make personal

gain from confidential company information;

• ensure that their personal interests do not conflict with the

interests of the company;

a director is expected to refrain from carrying out any ‘self-

dealing’ transactions, transactions motivated by their own

personal interests and not what is most beneficial for the

company.

Art. 143 emphasises the no-conflict rule143. (1) A director of a company may not, in competition with the company

and without the approval of the same company given at a general meeting,

carry on business on his own account or on account of others, nor may he be

a partner with unlimited liability in another partnership or a director of a

company which is in competition with that company.

(2) Where a director acts in violation of the prohibition contained in this

article, the company may, at its option, either take action for damages and

interest against him or demand payment of any profits made by him in

contravention of this article.

(3) The provisions of this article shall be without prejudice to any other

remedy which a company may have against a director for breach of duty.

• To exercise the powers they have for the purposes for which

the powers were conferred and shall not misuse such powers.

• Powers of directors originate from the Companies Act and the M&A

• Art 137(3) : the business of the company shall be managed by the

directors who may exercise all such powers of the company that are

not reserved by the Act or by the M&A to the general meeting.

• In practice the directors are given wide powers by the M&A

Responsibilty under other laws

�Tax laws

�Employment laws

�Health and Safety laws

�Environmental laws

• Statutory obligations under Companies Act

have to be seen also in the light of the

fiduciary duties of directors imposed by the

Civil Code.

Thank you

Joseph H Caruana

Registrar

Registry of Companies

Malta Financial Services Authority

Attard BKR 3000

E-mail: jcaruana@mfsa.com.mt