Purpose of the proposed Act:

On February 19th 2013, the Chamber of Deputies of the Czech Parliament has approved the government’s proposal of the Act on several measures to increase transparency of joint-stock companies (Parliament Publication No. 715). The proposal is closely related to the new Act on Business Corporations (no. 90/2012 Coll., hereinafter “Act on Corporations”), which will come into effect on January 1st 2014.

Section 263 (2) of the Act on Corporations provides that bearer shares of joint-stock companies may be issued only either in a dematerialized form, or while being immobilized (see below). Similar legislation is introduced by an amendment of section 155 (2) of the Czech Commercial Code, included in the proposed Act, which itself should provide a framework necessary for a transition to the new conditions set forth by the new Act on Corporations. The aim of the mentioned legal provisions is to ensure that any beneficiary owner of the company is traceable. It should strengthen rules on money laundering.

Details:

The proposed Act shall be applied to bearer shares which are not immobilized (i.e. the type of shares which will not be permitted in the future under the scope of the Act on Corporations). Thus, according to the legislator, under the proposed Act, there will be 3 possible ways for transforming such shares into a legally accepted form:

  1. Modification of the share form (i.e. “dematerialization”)
  2. Immobilization of documentary shares (i.e. their deposition by an authorized entity)
  3. Change to documentary name-registered shares

Ex lege change to name-registered shares

In case that the transformation of the bearer shares is not made by a decision of a joint-stock company itself, on January 1st 2014 the documentary bearer shares will be transformed to name-registered shares by the virtue of law (section 2 (1) of the proposed Act). The proposed Act provides for further duties of relevant persons to ensure conformity with the law, namely:

  1. An obligation of the relevant company’s board of directors to ensure that the modification of the shares to name-registered is registered in the Commercial Register by June 30th 2014;
  2. An obligation of the joint-stock companies to summon the shareholders to a physical exchange of the shares by March 30th 2014;
  3. An obligation of the shareholders to hand over their documentary bearer shares for exchange by June 30th 2014.

Any delay with the fulfillment of the abovementioned duty of the shareholder would trigger consequences such as loss of the shareholder’s rights incorporated in the shares and extinction of any claim for dividends.

The shares exchange itself will take place by issuing new shares or by modifying the existing ones. Transfers of the name-registered shares in the meantime (i.e. between January 1st and June 30th 2014) will be subject to the name-registered share provisions – besides a handover, it will be necessary to make an endorsement. After the shares modification/transformation, the first general meeting of the company is to be convoked according to the rules applicable for joint-stock companies with documentary bearer shares.

Share’s modification by a decision of the joint-stock company

Before January 1st 2014 it is possible to make the corresponding modifications (i.e. “immobilization”, “dematerialization” or a swap to name-registered shares) by a decision of the company, according to the existing rules as amended by the proposed Act.

Current status of the legislative process:

The proposed Act is now being deliberated in the Senate. It is expected that it will pass in its currently proposed form.