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Restriction of ownership of bearer shares in Czech law

Restriction of ownership of bearer shares in Czech law

Restrictions or total ban of bearer shares have been topic of several proposals for changes in the Czech statutory regulations. However, the Czech parliament only recently received a proposal of a new statutory act on certain measures aimed at higher transparency of joint stock companies. It is very likely this act will be actually approved.

According to the existing legislation, the main advantage of any bearer shares is in particular their unlimited transferability. Vast majority of existing joint stock companies are just issuers of bearer shares. It is a very popular and common type of security.

The proposed act does not cancel the bearer shares, but introduces significant limitations to this concept. The aim of this statutory regulation is to limit anonymous ownership of joint stock companies and to restrict the non-transparency business activities and corruption.  The proposed legislation should allow verifying the identity of the shareholders with bearer shares, which is not possible under the existing legislation.

The proposal preserves the existence of the bearer shares as such, but simultaneously sets a mandatory obligation to register them with central depositary or have them immobilized (i.e. actually deposited with a bank).  Both methods shall allow for identification of the owner of the bearer share, by the central depositary or by the bank. Also any later transfer of any bearer share will be subject to mandatory registration of the new owner. The data will be (subject to specific regulation) accessible by public authorities such as police forces, grant institutions, etc.

Other possible method, by which the existing companies with bearer shares may comply with the proposed novelization, is for such companies to change their bearer shares for registered shares. The proposed novelization expressly allows this type of exchange taking into account the estimated amount of costs related to the central registration or immobilization of the bearer shares (which is expected to be quite costly).

In compliance with the proposal, any materialised (physical) bearer shares in respect of which their issuer has not made the selection between their registration or immobilisation, shall be considered as of 1st January, 2014 as materialised registered shares.

The proposal of the new act should help the transformation of the existing joint stock companies which have bearer shares within the framework of the existing legislation, while keeping in mind the new legislation represented by the Act on Business Corporations (the Act No. 90/2012 Coll.) that becomes effective as of 1st January 2014; this Act also presumes that joint stock companies will be entitled to issue only registered shares (for bearer shares the Act also sets a mandatory registration with central depositary or bank immobilization).

Some experts already express their disapproval with the limitation of bearer shares. The main argument is that the new legislation applies to all joint stock companies with bearer shares, regardless of the fact if such company is aiming at public funds or its business activities concern areas in which there should be a legitimate interest to keep anonymous ownership of shareholders structures.

Jiri Spousta

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