News / Legal alert: Mandatory dematerialisation of shares
On 20 September 2019, the Act amending the Commercial Companies Code and other acts was announced, which provides for mandatory dematerialization of shares in private joint-stock companies and limited joint-stock partnerships (hereinafter: "Amendment"). Pursuant to the provisions of the Act, shares of companies will no longer be allowed to be traded in paper form, and each shareholder will be subject to the obligation to disclose their shares in the register.
The Amendment is mainly dedicated to the mandatory dematerialization of document actions and replacing the action document with an account entry. The justification for the proposed changes is to enable the exchange of tax information on holders of bearer shares, which are currently impossible to identify. The intention of the amendment is to prevent the use of bearer shares for abusive purposes, such as money laundering. In addition, mandatory dematerialization is to increase the safety and efficiency of trading, as well as contribute to the facilitation of the operation of companies.
The Amendment provides for the introduction of a register of shareholders in which the shares of non-public companies will be registered on a mandatory basis. The Act specifies entities that will keep the register, e.g. banks and brokerage houses. The register will disclose the data of each shareholder, regardless of their capital commitment and the type of shares held. The most important thing is that only persons entered in the register will be considered shareholders of a given company. The register will be available for the company and its shareholders, but the third parties will not be able to obtain information about the shareholding structure.
Finally, by 1 January 2021, companies must dematerialize their shares, otherwise the shares will expire. The choice of the entity to keep the register of shareholders will be decided by the General Meeting. Ultimately, by 30 June 2020, the management boards of companies will be obliged to conclude an agreement with the entity selected to keep the register. In addition, the management boards of companies are obliged to make five calls for shareholders to submit shares in the company.
Obligatory dematerialization of shares causes a number of changes, among others, concerning the rules of disposal and encumbrance of shares. All transactions involving shares will require notification to the shareholders' register and an appropriate entry in it. Therefore, the disposal of shares will only be effective upon entry into the shareholders' register. Lack of appropriate notification will result in the impossibility of recognizing the person as a shareholder.
The Amendment also introduces a change in the way of payment of dividend. The entity keeping the register of shareholders will also act as an intermediary between the company and its shareholders in the payment of dividends. Except if shareholders decide to pay the dividend directly, which also requires an amendment to the company's articles of association.
It seems that the Amendment to the regulations increases the safety and security of trading in shares. At the same time, the amendment significantly affects the functioning of companies and introduces many new obligations. In particular, there will be a necessity to pay fees to a bank or a brokerage house for keeping a register of shareholders.
The link to the Amendment in Polish can be found here.