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End of anonymous shareholders in the Czech Republic

The bill is going back to the Chamber of Deputies in a stricter form. The Senate decided it should be complemented with two amendments. We can now expect changes to the Public Procurement Act and the Act on Promoted Energy Sources. Take a look – will these changes also affect you?

The motive of the draft legislation cancelling certificated bearer shares is the effort to increase transparency of shareholders’ structures and avoid abuse of certificated bearer shares.

The amendment proposes that joint stock companies be still allowed to issue bearer shares, however, only under the condition of their registration with the central depository or their immobilisation (physical depositing) in a bank.

If companies wish to keep the current form of their bearer shares, the will have to choose one of the options above. If a company takes no such action, bearer shares will be considered certificated registered shares as of 1 January 2014. At the same time, the company will not be able to enforce its shareholder’s rights until it exchanges them for registered shares.

Still, the whole process will mean spending a lot of funds for business entities. There are about 25,000 joint stock companies in the Czech Republic and more than half of them hold bearer shares.

The Senate proposed regulation that kept the original government bill as a whole but added the amendments to the Public Procurement Act and the Act on Promoted Energy Sources. In the case of the amendment to the Public Procurement Act, the Senate’s bill stipulates that joint stock companies tendering for public contracts are obliged to have uncertificated shares. Foreign entities would then be liable to issue an affidavit specifying the person that is the owner of the shares the nominal value of which exceeds 10% of the tenderer’s registered capital.

Unfortunately, whether passing such a bill makes sense and whether the deputies will solve the above mentioned drawback of bearer shares by this measure remains a question. If shareholders who wish to remain undisclosed for any reason bought a company in a country where bearer shares are not banned and then bought shares of a Czech company through such foreign firm, the Czech joint stock company will continue to provide anonymity to its beneficial owners.

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