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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
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