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Limitation of anonymous shares in the Czech Republic

Limitation of anonymous shares in the Czech Republic

On 25.1.2012 the Parliament of the Czech Republic approved the new Act on business corporations (the “BCA”), which will become effective as of 1.1.2014. The BCA, together with the new Civil Code, are the fundamental grounds of the recodification of the Czech civil law.

The recodification will introduce important changes also to the existing legal framework of regulation of shares under Czech law, particularly with respect to the form of shares of joint stock companies. The main aim of the new law is to limit the possibility of uncontrollable circulation of bearer shares, i.e. shares which do not include shareholder´s name, together with the limitation of shareholder’s structures in which the identity of the individual shareholders cannot be verified by the public authorities. This should lead to higher level of transparency of the Czech business environment, reduction of corruption behaviour and aggravation of legalization of crime profit.

For the above purposes, the BCA newly introduced mandatory immobilisation or book-registration of the bearer shares. The formal requirements and the actual process for the transformation of the bearer shares into new form of shares, are set out in the Act on certain measures aimed at higher transparency of joint stock company (the “Transparency Act”), effective as of 30.6.2013

 

The above described changes are reflected in the Section 263(2) of the BCA according to which “Company may issue bearer shares only as book registered security or immobilised security; the same shall apply to any change of form or modality of shares.“ We can conclude from the above that both type of shares, nominative shares and bearer shares, will still be acceptable, subject to the bearer shares being immobilised or book-registered.

To begin with, all joint stock companies, including European (joint stock) company, may issue bearer shares after the effective date of the Transparency Act only as book-registered or immobilised securities. Furthermore, all existing joint stock companies with bearer shares are obliged as of 1.1.2014

a)  to modify their bearer shares into nominative shares;  or b) to book-register their bearer shares as the bearer shares with the Central Securities Depository or immobilise these with the bank, i.e. to physically put them into bank depository.

An existing joint stock company has the following two possibilities:

1)   to change the form of its shares  to comply with the statutory demands from its own initiative by the 31.12.2013. A formal decision of company´s general meeting supported by the minimum of three-quarter majority vote of the present shareholders must be executed in this case,

2) in case the company will not proceed according to Section 1) above, all of its bearer shares will be changed automatically as 1.1.2014 into nominative shares pursuant to the Transparency Act. If the shareholders that own such shares fail to register into the company´s list of shareholder´s, they will not be entitled to execute any shareholder´s rights attached to the respective shares. In order for such change of shares to be effective, it will need to be registered in the Commercial Register. The company´s board of directors has a statutory prescribed period till 30.6.2014 to make the company´s articles of associations compliant and apply for the registration of the new form of the shares with the Commercial Register.

The introduced changes are without a doubt a step in the right direction and shall improve the picture of the Czech Republic in the eyes of other states and international organisations. They can also bring positive effect on the Czech market in relation to foreign investors. However, it is disputable how big the improvement in the transparency of the Czech business environment will actual be, in particular in the area of public tenders.

 

 

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