Raising acquisition equity through a Cypriot holding company

From a funding strategy perspective, going public enables a company to enlarge and diversify its equity base. By tapping into a wide pool of potential investors and thus generating growth and working capital, an initial public offering (IPO) on a securities exchange may enable cheaper access to capital compared to the over-the-counter market. Getting there is undoubtedly a demanding process, as an IPO is associated with significant start-up – and ongoing – legal, accounting and underwriting costs. Increased thresholds of financial and business reporting and disclosures would need to be met by the prospective public company as well, and one cannot sign off the risk that the required funding may not be raised.

For emerging companies evidencing potential profit or cash flow improvements, a takeover may well be an appealing liquidity alternative strategy. Where the primary acquisition of the target company is structured through the secondary acquisition of the target’s Cypriot holding company, the buyer will almost always explore purchase avenues through the holding company itself.

The capital clause in the memorandum of a Cypriot private company sets out the amount of the authorised capital and, further, how this authorised capital is divided and represented in shares of a fixed amount.

The authorised capital connotes the amount of capital that a company is authorised to issue. The company may in general meeting, if so (and how so) authorised by its articles of association, increase its authorised capital by such amount as may be resolved by its shareholders. The subset of the authorised capital that has been issued to the shareholders of the company forms the issued share capital.

Nick Tsilimidos is an associate at L Papaphilippou & Co in Cyprus