Greater transparency of joint-stock companies?
Briefing note
1
August 2013
Greater transparency of joint-stock
companies?
In the first half of July 2013 the Act on Certain Measures to Increase the
Transparency of Joint-stock Companies (the "Act") entered into force.
As a result, the identity of shareholders in Czech joint-stock companies with
"anonymous shares" should become known. Until now these shareholders
have enjoyed the benefit of anonymity.
The main aim of the Act is to strengthen the position of the Czech authorities in the fight
against organised crime and illegal activities such as corruption and money laundering
by ensuring the traceability of shareholders in joint-stock companies.
It is widely-known that joint-stock companies with anonymous shareholders can be used
as vehicles for illegal activities. Shareholders can hide from creditors or even be linked
to decision-making processes for the allocation of public funds. Therefore, unveiling the
shareholding structure could indeed improve the business environment in the Czech
Republic.
It is however questionable whether the Act will be able to achieve its ambitious goals. The
main reason being that the rules it introduces can easily be by-passed and shareholders can
still maintain their anonymity.
Changes introduced by the Act
The mechanics for unmasking shareholders introduced by the Act are simple. By 1 January 2014 companies with
certificated bearer shares (in Czech: listinné akcie na majitele), also known as "anonymous shares", will have to either
(i) immobilise these shares, (ii) dematerialise them, or (iii) change the form of these shares into certificated registered shares
(in Czech: listinné akcie na jméno).
Immobilisation means that certificated bearer shares will be deposited in escrow at the Central Securities Depository, a bank,
or other entity entitled to maintain records of investment instruments. Dematerialisation means that the certificated bearer
shares will be transformed into paperless form and registered with the Central Securities Depository. Either way the direct
shareholders of the joint-stock company will be revealed and "anonymous shares" will be eradicated.
Certificated bearer shares which have not been immobilised or dematerialised by 1 January 2014 will automatically
transform into certificated registered shares. If the shares are immobilised the company will have to record in the
Commercial Register the name, address of the registered office and identification number of the person with whom the
shares are deposited. It will also have to include information that the shares are immobilised in its articles of association.
2
Greater transparency of joint-stock companies?
Further, the Act includes a legal
assumption that the provisions of the
articles of association of a joint-stock
company regarding the form of shares
will automatically change on
1 January 2014, unless the company
changes them before this date. It
however still imposes the obligation
on the board of directors of the
company to file a motion to enter
a record regarding the change of
the articles of association in the
Commercial Register by 30 June
2014 at the latest.
While the main changes introduced
by the Act will become effective in
2014, two significant changes to the
Commercial Code introduced by the
Act are already in effect. First, jointstock companies can only issue
dematerialised or immobilised bearer
shares. The Commercial Register will
therefore refuse to register any newly
established joint-stock company with
certificated bearer shares unless the
articles of association state that such
shares are immobilised.
Second, if a joint-stock company
issues registered shares as
certificates the list of shareholders
has to include the numbers of the
shareholders' bank accounts. The
company will only pay dividends into
such bank accounts and the bank
accounts have to be maintained by an
entity authorised to provide banking
services in the EU, EEA or OECD.
For these purposes the shareholders
must notify the company of their bank
account numbers by the date of the
first general meeting of the company.
The process of changing the
form of certificated bearer
shares
If a joint-stock company with
certificated bearer shares remains
inactive until 1 January 2014 and the
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change to registered shares occurs
by operation of law, the company will
have to call on its shareholders and
request that they present their shares
to the company. The request will have
to be made by 31 March 2014 at the
latest in the same manner as the
convocation of the general meeting.
The shareholders will then have to
present their shares by 30 June 2014
at the latest and the company will
replace them with new shares or
amend them so that they fulfil the
legal requirements. The date of issue
of the new shares will be the date on
which the board of directors adopts
a decision to replace the shares.
Consequently, joint-stock companies
will have to start keeping lists of their
shareholders. For this purpose
shareholders will have to provide
companies with the relevant data for
such lists.
If a shareholder does not present its
shares and provide the relevant
information to the company in time,
it will not be able to exercise its
shareholder's rights (including the
right to dividends) connected with the
shares it failed to present. The
company has to inform the
shareholders about these
consequences when calling on them
to present their shares.
If the shares to be presented are at
the disposal of a pledgee or any other
person who is entitled to hold the
shares, the respective shareholder
has to notify such person of the duty
to present the shares. If notice is
given, and the shares are not
presented, the person holding the
shares will be liable to the
shareholder for damages caused.
If a joint-stock company has accepted
a decision to issue bearer shares as
certificates which are not immobilised
before the Act becomes effective it
"It is widelyknown that jointstock companies
with anonymous
shareholders
can be used as
vehicles for
illegal activities."
can still issue them. However, such
shares will of course be automatically
transformed into registered shares as
at 1 January 2014 by operation of law
if not immobilised or dematerialised
before then.
If shares which were transformed into
registered shares as at 1 January
2014 by operation of law are being
transferred, the transferee has to
place its name and other identification
data on the share.
Amendment of Other Acts
The Act also amends the Act on
Securities regarding immobilised
securities by setting new rules for the
issuance of global share certificates.
A new article containing special
detailed provisions on immobilised
securities was introduced into the Act
on Business Activities on Capital
Markets.
New Act on Business
Corporations
The Act is in line with the new Act on
Business Corporations which was
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Greater transparency of joint-stock companies?
promulgated in 2012 and is supposed
to enter into force as of 1 January
2014. The new Act on Business
Corporations also allows joint-stock
companies to issue only
dematerialised bearer shares or
immobilised certificated bearer
shares.
3
Authors
End of shareholder anonymity?
The Act might be a step in the right
direction in the fight against
corruption. However, as noted at the
beginning of this article it can be
easily circumvented. This will
probably prevent it from achieving its
ultimate goal, which is the uncovering
of shareholding structures in Czech
joint-stock companies. Shareholders
who wish to remain anonymous can
still hide behind companies or trusts
from other countries which allow
anonymous shareholding. Or they can
simply use another person or legal
entity to own the shares for them as
a "front man". The direct shareholders
of Czech joint-stock companies may
be revealed in 2014 but the ultimate
shareholders will still be able to
remain anonymous if they wish, albeit
at increased cost. Czech lawmakers
will therefore have to continue their
efforts to effectively fight corruption
especially with respect to public
tenders.
David Koláček
Partner
Tomáš Doležil
Counsel
T: +420 222 555 222
E: david.kolacek
@cliffordchance.com
T: +420 222 555 222
E: tomas.dolezil
@cliffordchance.com
Tomáš Bayer
Junior associate
T: +420 222 555 222
E: tomas.bayer
@cliffordchance.com
This publication does not necessarily deal with every important topic or cover
every aspect of the topics with which it deals. It is not designed to provide
legal or other advice.
Clifford Chance, Jungmannova Plaza, Jungmannova 24, 110 00 Prague 1,
Czech Republic
© Clifford Chance 2013
www.cliffordchance.com
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