Recent developments and the need for more clarity
Usufruct is a creature of the Civil Code (Chapter 16). Article 328 defines it as the real right to enjoy things of which another has the ownership, subject to the obligation of preserving their substance in both matter and form. Articles 329 to 388 then set out the rights of the usufructuary, their obligations, and the modes of termination. The institute was drafted and developed around immovable real estate assets as is reflected in the language: tenements, fruits, cultivation charges, deterioration.
Usufruct is neither a modern invention nor one designed with shares in mind. It is a Roman personal servitude essentially granting the grantee the right to use and take the fruits of the grantor’s property while leaving its substance intact. The right has always been rigorously personal: it could not be alienated, it expired with the usufructuary rather than passing to his heirs, and it could be transferred only back to the bare owner, for the sake of consolidating the property. Traces of those features survive in the Maltese Civil Code provisions, and they tend to create a degree of “friction” when the object is a share rather than the real estate assets which it was historically applied to.
In Maltese family businesses usufruct has served as an effective mechanism for wealth and succession planning, enabling parents to donate company shares to their children in bare ownership, whilst retaining the usufruct over those shares. Correctly structured, both the voting rights and the dividend and other income continue to flow to the parents, and so, in practice, does the influence. The device is cheap, familiar to every notary, and avoids the formality of a trust. Until 2025 the Maltese Companies Act (Chapter 386) contained no reference whatsoever to usufruct over shares and how it was to be regulated in the context of Malta-registered companies.
The Companies (Amendment) Act, 2025 (Act XVIII of 2025) changed that position by introducing a new Article 117A into the Companies Act. The provision is short and useful. It is also narrower than it first appears: it answers the governance question concerning the allocation of shareholder rights (in particular, the exercise of voting rights) between the bare owner and the usufructuary, but leaves untouched two practical questions principally affecting external stakeholders: first, the disclosure, quality and consistency of the information that anyone outside the company should expect to see in connection with any usufruct that may exist over that company’s shares; and second, what happens when the bare owner decides to sell his/her shares, where the parties have not provided for this by contract. Article 117A therefore falls short of providing the clarity needed in the application of the institute of usufruct over shares in Maltese companies, leaving room for further amendments to support the wider adoption of this institute in the market with certainty on the formal and substantive validity of any transactions involving such rights.
Why the sudden uptake of usufruct over shares in Malta?
Usufruct over shares has become much more visible in the last decade, and the driver is largely found in fiscal incentives. In Malta, transfers of marketable securities (including shares in a private company) ordinarily attract duty on documents at 2% of their real value. This duty rises to 5% where the company meets the property (real estate) holding thresholds. Since 2017, the Duty on Donations of Marketable Securities and Immovable Property used for Business (Exemption) Order (S.L. 364.15) has reduced the applicable duty on documents otherwise applicable to such transfers to €1.50 per €100, provided that the transfers are effected by way of gratuitous title from an individual to a qualifying family member, specifically the spouse or civil union partner, descendants and ascendants in the direct line and their spouses, or, in the absence of descendants, their siblings and their descendants. The same rate is also available for commercial tenements used in a family business for at least three years before the transfer, and no cap is applied to the value so transferred. This incentive has been renewed every year since 2017, most recently to cover transfers up to 31 December 2026, and it sits within a broader package operated through the Family Business Office under the Family Business Act, including the reduced 3.5% rate on the first €500,000 of business immovable property and grants for succession and governance consultancy. The policy has seen a significant uptake, giving business owners a concrete reason to start the transfer of wealth and handover of their family business during their lifetime rather than leave everything to be regulated by will or succession law.
That is precisely how usufruct has become a front-and-centre family wealth planning solution over the past years. A parent willing to move ownership to the next generation at 1.5% is rarely willing to give up the income or the voting influence at the same moment, and usufruct is the obvious answer. It lets the donation happen now while the donor keeps the dividend stream and a seat at the table. A decade of subsidised intergenerational transfers has therefore produced a substantial stock of Maltese companies whose shares are held in divided title, and the questions that follow are the ones this article is concerned with: who votes, whether the usufruct is visible on public record, and some sticky issues that may arise if the company is going through a sale to an outside third party – another significant phenomenon that Malta is currently experiencing. The incentive created the structures. The structuring issues are what we now have to work through.
The position before Article 117A
A company share is a sui generis animal. It bundles at least four distinct entitlements: the right to dividend, the right to attend general meetings, the right to vote at those meetings, and the residual claim on capital. The Civil Code offers no guidance on how to split that bundle of elements between a usufructuary on the one hand and a bare owner on the other. The Companies Act was silent too. Furthermore, the company’s register of members records a member, and not a divided title, leading to some debate and diverging practices as to how companies dealt with the lack of regulation in this space.
Broadly, three competing practices emerged. Some advisers treated the usufructuary as the shareholder for all practical purposes, reasoning that the vote is simply the mechanism through which the income is enjoyed and protected. Others treated the vote as an incident of ownership under Article 320 of the Civil Code, which vests in the owner the right of enjoying and disposing of things in the most absolute manner, and left it with the bare owner. Most, however, simply drafted around the problem in the deed and amended the memorandum and articles of association to include specific provision as to how the dividend and voting rights were attributed. Where no such provisions were articulated, some companies possibly took their chances in general meeting.
The exposure was real. A resolution carried by someone not entitled to vote is vulnerable to challenge, and directors were possibly running meetings on a register that did not explicitly provide who could lawfully exercise the right to vote. The absence of a clear rule left the usufructuary, the bare owner and the company itself in a state of uncertainty, and opened the door to disputes that could hinder effective decision-making.
What Article 117A actually does
“A usufructuary of shares in a company shall be entitled to attend any general meeting of the company and to receive dividends but he shall not be entitled to vote at any meeting of the company unless the right to vote is specifically mentioned and provided for in the: (a) public deed creating the right of usufruct; or (b) memorandum and articles of association of a company.”
The basic allocation covered in Article 117A is therefore: dividends to the usufructuary, attendance at general meetings to the usufructuary, and the vote to the bare owner (which implies by necessity the right to also attend general meetings, in order to exercise the right to vote).
It is unfortunate that the returns of capital and the distributions of accumulated reserves were not explicitly allocated in the provision so as to introduce a default position. Practitioners widely take the view that a return of capital, including on liquidation, belongs to the bare owner as it represents the capital, being the substance of those rights, and which the usufructuary is legally obliged to preserve (Article 328, Civil Code). Distributions of accumulated reserves are the hardest category since they can be perceived both as fruits and as capital. Our reading of Article 117A is that the reference to “dividends” is likely to include other distributions from the company’s reserves.
Against this backdrop, three specific features deserve attention.
First, the override must be specific. A generic clause providing that the usufructuary shall enjoy “all rights attaching to the shares” is unlikely to meet the statutory test of being “specifically mentioned and provided for”. Voting should be spelt out and, ideally, spelt out by category of resolution (ordinary, extraordinary, reserved matters, where applicable).
Second, the instrument matters. The Civil Code does not prescribe a form for the constitution of a usufruct over shares as such. Article 117A refers to the public deed creating the usufruct and the memorandum and articles of association. The form is invariably dictated by the title through which the usufruct is created. In this article we are principally concerned with scenarios involving a donation of the shares in bare ownership with the usufruct reserved in favour of the donor, where the point of formal validity is clear. Under Part II, Title XIV of the Civil Code, a donation must be made by public deed on pain of nullity, save where its value is moderate having regard to the condition of the persons and other circumstances, an exception that will rarely, if ever, extend to a meaningful shareholding in a family company. A donation of shares by private writing is therefore not merely outside Article 117A- it would effectively be null. The residual gap lies elsewhere: in circumstances involving the creation of usufruct constituted under onerous title, which may be created by private writing, and usufruct created by secret will. In those cases, the route to conferring voting rights on the usufructuary is an amendment to the memorandum and articles.
Third, historic arrangements are exposed. Article 117A is drafted as a rule of general application, not as a transitional provision. A usufructuary who has been voting since 2009 on the strength of a deed that says nothing about voting now finds the statutory default pointing the other way. Anyone relying on any such informal arrangements should pursue the proper crystallisation of such voting rights to avoid any conflicts, rather than rely on past practice as the recognition of an inferred right.
There is a compliance consequence too. Because beneficial ownership turns on ownership or control, granting a usufruct can change who must be disclosed on the Register of Beneficial Owners, and since Legal Notice 184 of 2026, companies must actively look for control exercised through means not apparent from the company’s share register alone.
The visibility problem: no filing, no record
Article 117A tells the company who votes. It does not tell anyone else outside of the company that a usufruct exists. The Companies Act still provides no statutory form through which the creation, transfer or cancellation of a usufruct over shares is notified to the Registrar of Companies in Malta so as to give it publicity vis-a-vis third parties, and the absence of any such filing leaves room for genuine doubt as to whether a usufruct subsists, in whose favour, and on what terms.
The contrast with pledges is instructive. A pledge over shares, which is likewise a real right carved out of the shareholder’s title, has its own filing regime: Form T2 notifies the Registrar of the constitution of a pledge, and Form T3 of its cancellation. Anyone searching the company’s file can therefore see whether the shares are encumbered by a pledge and in whose favour. No equivalent exists for usufruct. A usufruct may be created, consolidated with the bare ownership, renounced on a sale or extinguished on the usufructuary’s death without any corresponding entry on the public record. Where the usufruct is created by private writing, in cases where it is constituted under onerous title as outlined above, the opacity is greater still. A usufruct created by public deed of donation at least leaves a trace in the Public Registry. A usufruct created by private writing leaves no such trace, and an outside third party has no public source against which to detect it at all.
The annual return compounds the problem. The prescribed form has not been updated to reflect the creation or cancellation of a right of usufruct, so a company whose shares are held in bare ownership and usufruct will ordinarily continue to report a single member for each holding, with no indication that the dividend and, possibly, the vote lie elsewhere. The Register of Beneficial Owners may capture the usufructuary where the usufruct confers control, but that register serves a different purpose, is subject to restricted access, and is no substitute for a notice on the company’s file.
The result is an arrangement that is largely invisible to the people most likely to be affected by it: a purchaser or financier relying on a search with the Malta Business Registry BAROS system, a lender taking a pledge over shares it assumes to be unencumbered, a liquidator distributing surplus assets, or a co-shareholder exercising pre-emption rights. In extreme circumstances, the only evidence of the arrangement may be a private writing in the hands of one or both of the parties to an onerous usufruct transfer agreement. That opacity is fertile ground for unwelcome surprises. Appropriate amendments introducing prescribed notices of the creation and cancellation of a usufruct, possibly modelled on the statutory Forms T2 and T3, together with a corresponding disclosure in the annual return, would close the gap. Until then, the prudent course is to note the usufruct in the company’s register of members and in its memorandum and articles, and to treat any company registry search as incomplete. The point is reinforced by Article 127(1) of the Companies Act, under which, unless its articles of association provide otherwise, a company shall not recognise any interest or right in its securities other than that of the registered holder, even when it has notice of it. To avoid any tension with this rule, and even where the public deed creating the usufruct allocates the voting rights, the memorandum and articles should expressly acknowledge the usufruct and authorise the company to recognise it, as Article 127(1) permits, allocate the respective rights of the bare owner and the usufructuary, and amend any general clause in the articles restricting the recognition of interests other than that of the registered holder so that it does not extend to the usufruct.
The exit problem: usufruct meets the sale process
Whilst there are no official public statistics that track the sale of Maltese family businesses to outside investors, the trend is unmistakable from where we sit. As practitioners, we are witnessing a clear and sustained increase in transactions in which Maltese family-owned companies are being sold, in whole or in part, to third-party buyers, both local strategic acquirers consolidating their market position and international trade buyers and private equity houses, for whom a Maltese business is often one component of a broader regional platform or strategic positioning. That activity is no longer confined to a handful of sectors: it runs across healthcare and pharmaceuticals, hospitality and leisure, logistics and distribution, retail, gaming, technology, and professional and financial services. Many of the companies involved are precisely those in which the founding generation has, over the past decade, donated the shares in bare ownership while retaining the usufruct.
Given usufruct’s nature as a real right, it attaches directly to the shares, and it survives their transfer. The bare owner is free to sell the shares subject to the usufruct, but if he does so, what he sells is bare ownership, leaving the buyer subject to the third-party usufruct rights. Needless to say, no trade or private equity buyer is likely to accept that. They invariably seek to acquire full and unencumbered title, full voting control and distributable income and will require sellers to give extensive warranties to that effect. Consequently, on any sale transaction any usufruct rights must be appropriately dealt with, and there are three likely routes that could be pursued.
- Release. The usufructuary becomes a contracting party to the instrument of transfer and renounces the usufruct for consideration, with the price being apportioned between bare owner and usufructuary – a valuation exercise driven by the usufructuary’s age and the income forgone, with duty and capital gains consequences on each leg.
- Consolidation first. The usufructuary transfers the usufruct to the bare owner, the two capacities merge, and the now absolute owner sells.
- Usufruct continues over the sale proceeds. The usufruct is agreed to shift to the sale consideration, so the usufructuary draws the income from the cash proceeds arising from the disposal of the shares instead. This does not happen automatically, and must be contracted for. Furthermore, because money is consumable, it operates as a quasi-usufruct requiring security and a clear restitution obligation.
Whichever route is chosen, a recurring question is the form the exit must take.
Whilst one may be inclined to assume that a right created by public deed can only be transferred or extinguished by public deed, Maltese law contains no such general rule, and a usufruct over shares created by public deed of donation may, in principle, be transferred to a purchaser for consideration by private writing. The notarial form is a condition of validity only where the law requires it, and in the field of real rights that requirement attaches to immovables. Under Article 310(b) of the Civil Code, a usufruct over immovable property is itself classified as an immovable; by the same logic, a usufruct over shares, which are movables, is a movable right, and the public deed requirement for immovables does not reach it. A release or transfer of the usufruct for consideration may therefore, in principle, be validly effected by private writing, subject always to the terms of the deed and to the provisions of the Civil Code on the assignment and extinction of usufruct. The position is less straightforward where the usufructuary gives up the right for no consideration, as commonly happens where a parent steps aside in favour of the children ahead of a sale: a gratuitous renunciation in favour of the bare owner is liable to be characterised as a donation, and the recommended course would be to observe the public-deed requirement discussed above.
The provisions of Article 117A do not alter that analysis. Its reference to “the public deed creating the right of usufruct” assumes that the usufruct was created notarially, but it does not clearly require it, and the provision is entirely silent on how a usufruct over shares is transferred or brought to an end. On an exit, that silence has little practical consequence: once the usufruct has been released in favour of the holder of the bare ownership, that holder is vested with full ownership rights.
That a private writing suffices in law does not make it the best instrument. Where the usufruct was created by public deed, there is much to be said for completing the exit by public deed as well or, at the very least, having the signatures on the private writing authenticated. The reason is evidential rather than a question of validity: a public deed carries stronger proof, and certainty of date, as against third parties and, once enrolled in the Public Registry, will serve to “straighten the record” for anyone undertaking public registry searches to get a full understanding of the legal rights in play.
Article 117A does, however, sharpen the underlying commercial problem. Because the vote now sits with the bare owner by default, the bare owner can procure everything the company needs for a sale (typically board changes, waivers of pre-emption rights, amendments to the articles) whilst remaining unable to deliver what the buyer needs, which is title free of the usufruct. Control and transferability have been cleanly separated.
Conclusion
Article 117A is a genuine improvement. It replaces a legal vacuum with a workable framework and gives the parties two clear routes to contract out of it. But it is a governance rule, and little more. It does not tell anyone outside the company that a usufruct exists, it says nothing about how a usufruct over shares is transferred or brought to an end, and it leaves the position of usufructs created otherwise than by public deed uncertain. None of these gaps is fatal: each can be managed through careful drafting when the usufruct is created and careful structuring when the shares are sold. A framework that depends on every adviser getting every deed right is, however, not an ideal one.
The legislator has a clear opportunity to finish what Article 117A started. Prescribed notices of the creation, transfer and cancellation of a usufruct over shares, modelled on Forms T2 and T3, a corresponding disclosure in the annual return, and a clear rule on the form required to deal with a usufruct once created would go a long way towards establishing a clear procedure in the handling of transactions involving usufructuary rights. Regulators, creditors, co-shareholders and prospective purchasers alike need a reliable picture of who holds which rights in a company’s shares, and greater clarity on that point can only make for cleaner business for everyone involved. Usufruct has become one of the principal instruments through which Maltese family businesses pass from one generation to the next, and it is likely to remain so. The law governing it should be equally fit for purpose.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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