Variable Capital Investment Company - Important Amendments

02/02/2022

Background

A Variable Capital Investment Company (VCIC) is a type of company with liability limited by shares, with its main characteristic being that these shares do not have a nominal value but rather a variable value. Such a company can be used to operate a collective investment fund.

 A VCIC can take the form of either a private or a public company, depending on the type of investment fund, which will accommodate, namely Alternative Investment Funds (AIFs), Alternative Investment Funds with Limited Number of Persons (AIFNLPs), Registered Alternative Investment Funds (RAIFs) and Undertakings for Collective Investment in Transferable Securities (UCITSs).

The initial minimum share capital of such a company will depend on its type, as follows:

Recent Amendments to Companies' Law

On 5 November 2021 the Companies’ Law of Cyprus has been amended for what concerns VCICs.

In summary the amendments cover, among others, the following matters:

• The form of the Memorandum and Articles of Association of a VCIC.
• A requirement to receive a confirmation from the Cyprus Securities and Exchange Commission before the incorporation of a VCIC and in order to amend the Memorandum and/or Articles of Association of a VCIC.
• The strike-off of a VCIC from the records of the Registrar of Companies, as well as the circumstances under which it can be restored. A VCIC may be reinstated within two years from its strike-off, compared to the period that applies for limited liability companies, which is 20 years.
• How the capital and shares of a VCIC should be expressed in its Memorandum of Association.
• How a private limited liability company with a share capital can convert into a VCIC.
• An exception to the requirement to provide details regarding the share capital of a VCIC in its Annual Return.
• A requirement to include in the Memorandum or Articles of Association of a VCIC, specific references to the actual value of the issued share capital and the share redemption procedure.
• Provisions relating to the redemption of shares.

Contents of the memorandum of association relating to share capital

The Memorandum of Association of a VCIC should state the following in relation to its share capital:

• the share capital of the company is equal to the value of the issued share capital of the company at the time;
• the share capital is divided into a specified number of shares which do not have an assigned nominal value;
• the number of issued shares from time to time may not be less than the minimum number specified in the memorandum; and
• in case the share capital is divided into different classes of shares, the class or the classes of shares that make up the minimum number of shares noted above.

The minimum number of shares should be in line with the minimum initial capital provided by the Open-Ended Undertakings for Collective Investment (UCI) Laws of 2012 or the Alternative Investment Funds Law of 2018 as the case may be.

Each existing VCIC is obliged to submit a special resolution amending its Memorandum and Articles of Association to indicate that is now a VCIC in accordance with the new provisions of the Law within a period of 12 months starting from the date the amendments came into force, that is by 4 November 2022.

In case of non-compliance with the above-mentioned obligation a VCIC will be struck-off from the records of the Registrar of Companies.

Conclusion

Considering that Cyprus is becoming a popular jurisdiction for Alternative Investment Funds, the amendments concerning VCICs aim at creating a more comprehensive and clearer legal framework.  Furthermore, it is hoped that they will be pivotal in resolving procedural as well as operational issues faced by the investment funds industry.