A recent amendment to the Companies Act (Cap. 386 of the Laws of Malta), which became effective on 7th August 2025 clarifies the entitlement of usufructuaries of shares in Malta companies. The new article (117A) states that a usufructuary of shares in a company shall be entitled to attend any general meeting of the company and to receive dividends, however such usufructuary shall only be entitled to vote at any meeting of the company in respect of the shares which he holds in usufruct where the right to vote is specifically mentioned and provided for in the:
- Public deed creating the right of usufruct; or
- Memorandum and articles of association of a company.
What is usufruct?
Usufruct is a well-established legal concept which finds its origins in Roman Law, whereby a person (usufructuary) is temporarily entitled to use and enjoy the fruits of another’s (the bare owner) property without being permitted to dispose of the property and subject to the obligation of preserving the asset for the legal owner. Therefore in the context of immovable property for example a usufructuary may reside in or collect rent for a property owned by another person, the bare owner, but cannot sell the house or demolish it to make a block of apartments because he does not have legal ownership of the property and has the obligation to preserve it for the legal owner. It is effectively a separation of the right of use and enjoyment from the legal (bare) ownership of an asset.
How is usufruct created or terminated?
Usufruct can be created through a will, by a public deed or through operation of the law. It can be terminated under specific circumstances such as the death of the usufructuary or the expiration of the term for which it was constituted.
In what circumstances could one consider usufruct over shares?
Estate planning/inheritance – parents may transfer shares to their children but reserve usufruct to themselves or to the surviving spouse upon the demise of one of them. In this way parents retain the dividend income, whilst the children simply hold legal title or bare ownership temporarily which will become full ownership when both the parents pass away.
Divorce settlements or matrimonial property regimes – one spouse may retain legal ownership of the shares whilst the other gets income rights through the institute of usufruct.
Wealth & tax planning – the splitting of usufruct and bare ownership may in certain situations optimise duty or inheritance or gift taxes.
Business succession planning – this is particularly useful in family businesses where the founder transfers shares to successors but retains usufruct over all or part of the shares to provide for retirement income.
Collateral / security arrangements – usufruct may be provided as security to creditors giving them entitlement to dividends without the debtor/owner having to divest of the shares
How does usufruct work in the case of shares in a company?
Up until the recent changes, Maltese company law was silent on the subject. That the usufructuary would be entitled to dividends was undisputed as those are deemed to be the “fruit” of the shares in a manner of speaking, however it remained unclear as to whether usufructuaries were entitled to vote. Other jurisdictions have varying positions with Italian law vesting the right to vote in the usufructuary and France vesting the right to vote in usufructuary and bare owner jointly or with usufructuary having voting rights in relation to distribution of profits.
The amendments thus provide the much needed clarity to Maltese law, confirming that attendance at general meetings and receipt of dividends are basic rights of a usufructuary and that where it is intended for the usufructuary to also have voting rights, this should be stated in the deed constituting the usufruct or in the Memorandum and Articles of Association.
For further information and how Vertex Alliance can assist, please get in touch with our Corporate and Tax Manager, Michelle de Maria, mdemaria@valtd.com.
