Unravelling usufruct over shares: New article 117A of the Companies Act

The institute of usufruct is one of the most known legal concepts in Maltese society. Since its conception under Roman law, it has stood the test of time and owes much of its popularity to the fact that it is widely used in the context of succession.

Usufruct is a real right granted to a person (the usufructuary) who is entitled to use and enjoy the benefits and profits deriving from an asset belonging to another person (the bare owner), subject to the obligation of the usufructuary to preserve the asset. The bare owner must refrain from carrying out any act which may prejudice the rights of the usufructuary. In the context of immovable property, the usufructuary is entitled to use the property and benefit from any “fruits” deriving therefrom e.g. rental income. The usufructuary, however, cannot sell the property or make substantial changes thereto – such rights pertain to the bare owner.

However, what if the asset is a share in a company? Which rights pertain to the usufructuary and which pertain to the bare owner? Shares grant their holder a number of rights vis-à-vis the Company as set out in the company’s Memorandum and Articles of Association (“M&A”), the main ones being the right to vote, the right to dividends and the right to a return of capital. There is no question that the right to receive dividends, being the profits deriving from the shares pertains to the usufructuary. The position however is not as clear when it comes to voting rights. This is illustrated by the different approaches adopted in other jurisdictions.

Under Italian law, the right to vote is vested in the usufructuary; other administrative rights concerning the shares are vested in the usufructuary and the bare owner jointly. In France, the right to vote is vested in the bare owner except in the case of decisions relating to the distribution of profits, in which case the right to vote is exercised by the usufructuary.

Until very recently Maltese company law was completely silent on this matter. In the absence of specific provisions in the public deed creating the usufruct and/or the M&A, the only point of reference were the articles under our Civil Code. These do not make any reference to the allocation of shareholder rights between the bare owner and the usufructuary. This legal vacuum created uncertainty not only for the usufructuary and the bare owner but also for companies wishing to avoid potential disputes which stultify decision-making processes.

The Maltese legislator has finally attempted to address this conundrum through the introduction of a new Article 117A of the Companies Act by means of Act XVIII of 2025. This new article provides that the usufructuary of shares has the right to attend any general meeting and to receive dividends but has no right to vote “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”. Therefore, now the default position is that the right to vote is exercisable by the bare owner of the shares – irrespective of the subject-matter of the decision being taken by the general meeting – unless otherwise provided for in the M&A or the public deed creating the usufruct. This does not mean that a bare owner has a carte blanche; the right to vote cannot be used to prejudice the usufructuary’s right of enjoyment, as this would be in breach of the provisions of the Civil Code.

Although the new article sets the way forward for anyone wishing to grant a right of usufruct over shares, it does not address situations where, in the absence of specific legal provisions in the law, contract or will, the right to vote was being exercised by the usufructuary. To retain the status quo the only solution seems to be that of amending the public deed creating the right of usufruct or the M&A to reflect what is happening in practice. This can get complicated, especially when the usufruct arises from a will and shareholders oppose changes to the company’s statutes. As a result, there will be usufructuaries who will be stripped of the voting right which they exercised when Maltese law was still silent on the matter. On the other hand, there will be bare owners who will now have the right to vote and who need to ensure that the way their right is exercised does not impinge on the usufructuary’s right of enjoyment.

Article 117A is definitely a welcome step in the right direction as it seeks to fill-in a legal vacuum which has resulted in contrasting approaches with respect to the exercise of voting rights. The legislative change should prompt legal practitioners – especially notaries – to have a thorough discussion with clients wishing to grant the right of usufruct over any shares they own. The default position at law must be brought to clients’ attention and any deviations should be clearly stated in the public deed. Article 117A represents a key development in Maltese company law, providing overdue clarity on the respective rights of bare owners and usufructuaries over company shares. It also emphasizes the need for precise legal drafting and proactive advice, ensuring that, where required, the allocation of rights is explicitly set out in public deeds or M&As.

This article was first published in ‘The Sunday Times’ on 17/08/2025.