1. Powers and Role of the Board of Directors
The Board of Directors exercises the general management and administration of the company’s affairs, excluding those powers that, under the Companies Law (Cap. 113) or the company’s Articles of Association, are reserved exclusively for the General Meeting. Shareholders may exercise control over the directors’ actions through the General Meeting, either by amending the Articles or by replacing the directors.
The Board’s powers usually include:
i) The general management of the company’s operations,
ii) The maintenance of accounting records,
iii) The timely submission of tax returns,
iv) Compliance with the obligations towards the Registrar of Companies.
2. Composition
Every Cyprus company must have:
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At least one (1) director in the case of a private company, or
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At least two (2) directors for a public company.
All directors and the company secretary must be over 18 years of age.
In private companies with only one director, that sole director is not permitted to also act as the secretary, unless the company is a single-member private company, in which case the same individual may act as both director and secretary. The secretary is appointed by the Board of Directors, which determines the duration, remuneration, and terms of the appointment.
3. Legal Nature of Directors’ Duties
There is no uniform standard of conduct applicable to company directors. While the exercise of power by directors must be subject to oversight, imposing excessively rigid standards may limit their ability to act in the best interests of the company.
On the one hand, the level of involvement of each director may vary depending on their specific duties. On the other hand, in large corporate groups or larger companies, the Board often delegates part of its powers to employed professionals who carry out certain directors’ functions.
Historically, company directors were viewed as trustees or fiduciaries of the company, and their obligations were assessed on that basis. However, the prevailing modern view is that directors act as agents of the company and, in that capacity, occupy a fiduciary position. This distinction becomes largely irrelevant when assessing their duty of good faith and loyalty to the company, as these duties are identical to fiduciary obligations. However, it may become relevant when evaluating the duty of care and skill, which differs from that of a traditional trustee.
It is important to emphasise that directors owe duties to the company both collectively—through the board—and individually, in their personal capacity as directors.
3.1 Fiduciary Duties
Due to the fiduciary relationship directors hold with the company, they are under a duty to:
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Act in good faith,
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Exercise their powers for the proper purposes for which they were conferred, and
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Avoid placing themselves in situations where their personal interests conflict with those of the company, unless they have the company’s informed consent.
3.2 Duties of Care and Skill
The content of the directors’ duty of care and skill is not expressly defined under Cypriot law. Instead, guidance is derived from English case law. Specifically, in the In Re Barings Plc (No 5) [2000] case, it was held directors, collectively and individually, had a duty to acquire and maintain a sufficient knowledge of the company’s business to enable them to discharge their responsibilities. Directors cannot escape liability by delegating their responsibilities; instead, they must exercise powers of supervision adequately, and this depends on the facts. Moreover, in the Lexis Holdings (in Administration) v Luqman [2009] case, the Court of Appeal ruled that an inactive director will be in breach of this duty and may be liable for other directors’ wrongdoing due to inactivity.
It should be noted that this area of law is constantly under review.
4. Criminal Liability of the Board of Directors
As company officers, directors are subject to heightened legal responsibilities and are criminally liable if they breach the applicable legal framework. The criminal liability of officers in Cypriot companies is primarily governed by:
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The Criminal Code of the Republic of Cyprus (Cap. 154),
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The Companies Law (Cap. 113), and
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Various special laws, such as tax legislation and anti-corruption/money laundering provisions.
A) Criminal Liability under Cap. 113:
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Article 307: Offences by company officers during liquidation
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Article 308: Penalties for falsification of books and material omissions in declarations
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Article 309: Fraud by officers of companies in liquidation
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Article 310: Liability for failure to keep proper accounts
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Article 311: Fraudulent trading by officers and connected persons
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Article 312: Court’s power to order compensation against offending directors
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Article 313: Criminal prosecution of defaulting officers and company members
B) Criminal Offences under the Criminal Code (Cap. 154):
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Fraud (Article 300)
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Forgery (Article 335)
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Abuse of power (Article 105)
C) Special Legislation:
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Cap. 161: The Prevention of Corruption Law
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Law 95(I)/2000: Offences relating to VAT and tax law
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Law 188(I)/2007: The Law on the Prevention and Suppression of Money Laundering
Conclusion
The increasing responsibilities of company directors, combined with the breadth of their duties and the expanding framework of criminal sanctions, make the constant monitoring of their actions essential to protect the company. Ensuring transparency, accountability, and the smooth functioning of the company depends directly on the integrity and competence of those who govern it.
Author:
Semeli Epifaniou
Lawyer /Corporate Department