Usufruct - Company Shares
Introduction
Defined in article 328 of the Civil Code of Malta, the concept of usufruct offers a mechanism for dividing rights over an asset between two parties. This real right originates from Roman law, and it allows one person, referred to as the usufructuary, to enjoy the use and benefits of property owned by another, the bare owner. This is under the condition that the usufructuary does not alter the substance or form of the asset. Traditionally, the right of usufruct applied to immovable property. However, this was extended to also be granted over movable assets, which more recently also includes company shares.
The concept of granting usufruct over company shares brings about a number of complexities due to the complicated nature of company shares. Shares represent ownership interests in a company and confer different rights to the shareholders, such as the entitlement to dividends, and the right to vote in general meetings. Ordinarily, these rights are held together by the shareholder. However, when a usufruct is created over shares, these rights are split between the bare owner and the usufructuary, raising important legal and practical questions.
The Maltese Law Approach
Up until recently, Maltese law has been silent on the matter, which led to uncertainties as to the precise allocation of shareholder rights between the bare owner, who in this case is the shareholder, and the usufructuary, who by definition of the right of usufruct, is to enjoy the fruits of the shares. The introduction of article 117A of the Companies Act, through Act XVIII of 2025, has provided a much-needed framework to clarify such uncertainties. It states:
"117A. 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:
- public deed creating the right of usufruct;
or
(b) memorandum and articles of association of a company."
Upon the creation of a usufruct over company shares, the usufructuary becomes entitled to receive the dividends. This aligns with the fundamental principle of usufruct. The bare owner, although still the legal holder of the shares, no longer receives the income generated by them. Notably, despite the law still being silent on whether to include the usufructuary in the company's register of members, it now explicitly states that the usufructuary is the party benefiting from the company's profits.
Voting rights, however, are treated differently. By default, these remain with the bare owner. Nonetheless, the new article 117A allows for flexibility through the public deed that constitutes the usufruct, or through the company's memorandum and articles of association. These may expressly assign voting rights to the usufructuary. This enables parties to tailor the arrangement according to their needs.
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.
