On 16 July 2014, Luxembourg Parliament voted a law aimed at changing the regime of bearer shares in response to recommendations by the Financial Action Task Force and the Global Forum on Transparency and Exchange of Information for Tax Purposes. According to these institutions, Luxembourg must ensure the transparency of shareholdings in public limited liability companies and partnerships limited by shares that have bearer shares in order to combat fraud and tax evasion.

From now on bearer shares must be deposited with a depositary and registered. The management body of the issuing company will have to appoint a professional depositary who will keep a record of all necessary information to identify the holders of bearer shares.

Scope/Transitory provisions

All Luxembourg public limited liability companies (“sociétés anonymes”) and partnerships limited by shares (“sociétés en commandite par actions”) that have issued bearer shares fall within the scope of the new law, as well as other investment vehicles (such as SICAV, SICAR, SIF or FCP) that have issued either unlisted bearer shares or bearer shares admitted to trading on a regulated market. The new law is applicable to bearer shares that have already been issued before its entry into force as well as to the bearer shares issued thereafter. The law was published in the Luxembourg official gazette on August 14, 2014 and will enter into force the third day after its publication. Management bodies of companies and shareholders are given a six-month period of reprieve to appoint a depositary or to deposit their bearer shares, as the case may be.

Depositary

The management body must appoint a depositary who keeps a record of all issued bearer shares. The depositary may not be a shareholder of the company, and must be a professional entity established in Luxembourg belonging to one of the following categories:

  • Credit institutions
  • Asset managers
  • Regulated professionals of the financial sector
  • Lawyers
  • Notaries
  • Certified public auditors 
  • Accountants

Share Register

The share register will record, for each shareholder, their identity, the number of shares held by them, the date of deposit of the shares and any transfers of shares. While a register of registered shares of a Luxembourg company is in principle accessible to all shareholders at the company’s registered office, a register of bearer shares created under the new law can only be accessed by the relevant shareholder as regards information relating to that shareholder. Other shareholders, directors and third parties do not have access to such information. A shareholder may request a certificate showing all entries relating to its shares. Such certificate only confirms that the shares have been deposited and registered.

Ownership of bearer shares is established by way of the entry into the register and transfers of bearer shares can only be perfected by recording a declaration of transfer in the register. This is one of the major changes introduced by the new law. Prior thereto, bearer shares could be transferred by simply handing over the bearer share certificates. However the legislator has clearly stated that this formality does not change the legal nature of the bearer shares.  The depositary itself may only return the bearer share certificates to the company in a limited number of cases, namely if the depositary ceases to act, if the bearer shares are converted into registered shares, in case of repurchase of own shares by a company or in case of redemption of share capital.  Furthermore, the law provides that a pledge over bearer shares is also effected by the inscription of such pledge onto the register held by the depositary.

Penalties

Company directors who do not comply with their obligations may incur a fine from €5,000 up to €125,000. The fine which can be incurred by depositaries ranges from €500 up to €25,000.

The transitory provisions also give rise to specific penalties: when bearer shares are not registered within the statutory period of six months, the right to vote pertaining thereto will be automatically suspended until registration has taken place. Shares, the right to vote of which has been suspended, will also not be taken into account for the calculation of quorums and majorities at general meetings and the shareholders concerned will not be allowed to attend these meetings. Also, dividend distributions will be suspended until registration has been properly carried out.

If bearer shares have not been registered eighteen months following the publication of the law, they are cancelled and the capital of the issuing company is reduced correspondingly. The proceeds of the capital reduction will then be deposited with the “Caisse de consignation” until claimed by a person who can prove title to the shares.