Bearer shares are abolished
What was decided?
As part of the implementation of the recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes (OECD), the transparency of legal entities must be increased, and thus an adjustment of bearer shares has become necessary. Bearer shares have met with international criticism because they are anonymous and easily transferable and can thus be abused for tax evasion and money laundering. Nevertheless, an adjustment was put on the back burner by parliament and now had to be implemented within a short period of time, which was objected to in parliament.
The amendment to the law means that bearer shares are only permissible if the company has equity securities listed on a stock exchange or the bearer shares are structured as intermediated securities. These companies must have a corresponding remark entered in the commercial register within 18 months of the law coming into force. Furthermore, a violation of the obligation to report the beneficial owners or to keep the share register and the list of beneficial owners of shares is punishable. Further information can be found in the dispatch on the amendment to the law.
Companies that cannot benefit from this exception have a transitional period of 18 months to convert their bearer shares into registered shares. Bearer shares that are not converted into registered shares within this period will automatically be converted into registered shares. The share register must be adjusted accordingly.
"Shares of shareholders who have not applied to the court for their registration in the share register five years after the new law comes into force shall become null and void. The contributions fall to the company. Shareholders whose shares have become void through no fault of their own can claim compensation within ten years. (cf. press release)"
The new law is expected to come into force in autumn 2019, but no later than 1 January 2020.
Can I continue to form a public limited company with bearer shares?
According to the Commercial Register Office Zug, new companies with bearer shares will no longer be possible after the law comes into force, and existing companies with bearer shares will have to convert the shares into registered shares unless the exceptions mentioned above apply.
Do I have to do anything if I hold bearer shares or my company has issued bearer shares?
Provided it is a listed company or a company with intermediary securities, the company can benefit from the exemption and the bearer shares do not necessarily have to be converted into registered shares. Corresponding transparency rules already apply here.
All other companies must convert their bearer shares into registered shares within the deadline. "If this deadline is not met, the bearer shares are converted into registered shares by operation of law. The commercial registry office must enter the corresponding change ex officio in the commercial register. It shall at the same time enter a remark that the supporting documents contain information that deviates from the entry. The public limited companies whose shares have been converted by operation of law must adapt the articles of association to the conversion at the next amendment of the articles of association. The Commercial Register Office rejects any application for registration of a different amendment to the articles of association as long as this adjustment has not been made. (cf. HR Zug as well as art. 5f. transitional provisions)".
In addition, shareholders already have a reporting obligation under Art. 697i CO. Anyone who acquires bearer shares in a company whose shares are not listed on a stock exchange must notify the company of the acquisition, his first and last name or his company name and address within one month. After the new regulation has come into force, the company must again request its shareholders to comply with the notification. The request must contain the numbers of the shares concerned as well as the notice that shareholders who do not comply with their obligation to notify will definitively lose their rights and their contributions will be forfeited to the company (Art. 4f. Transitional Provisions).
Thereafter, the Company shall convert the bearer shares into registered shares and amend the Articles of Association accordingly.
Shareholders who do not comply with the notification requirement run the risk of forfeiting their property rights. The company must record unregistered shares in the share register and the board of directors must ensure that such shareholders can no longer exercise their rights. Subsequent registration is still possible for five years, but shareholder status must be proven. Furthermore, the company must agree and a court must confirm the registration. It is therefore a cumbersome procedure and a shareholder would do well to fulfil his duty already today.
"Shareholders whose shares have become null and void through no fault of their own can claim compensation within ten years". In the details, the National Council has adopted a slightly different regulation here from the Council of States. (cf. press release)"
Do I have to report changes in the beneficial owner?
Yes, shareholders must notify the company of the name and address of the beneficial owner. Changes must be reported within three months. The company must keep a register of beneficial owners. If the share register is not kept by the company in accordance with the regulations, this can be sanctioned. Both the shareholders and the company have an interest in the share register being kept correctly.
This article was written by RA Yves Gogniat.
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