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H&H new Report about Bearer Shares in Uruguay

New Act about Bearer Shares in Uruguay

It was recently passed by the Executive a new act (N° 18.930) about bearer shares ("Act"). This Act will come into force, according to Section 25, the first business day of next month (August).

The new Act has been under scrutiny not only by the Congress, but also by different sectors of the Uruguayan Society, which required that the original bill prepared by the Executive be substantially modified.

The most important change brought by the Act is a modification in the system of bearer shares in Uruguay. Bearer shares continue existing in our country but now need to be registered with a public registry, which can only disclose this information to certain governmental agencies and under specific situations.

The Act sets forth that it is mandatory to inform and to identify before the Uruguayan Central Bank ("UCB") those who are the shareholders of the bearer shares as well as the persons that represent the shareholder and the ones, if applicable, that hold shares in custody.

The proceeding set out by the Act to identify the shareholders (and other persons appointed by the Act) has two steps and is organized to be complied with through sworn statements. The shareholder that holds, in whole or in part, bearer shares of a Uruguayan company must send a sworn statement addressed to the company stating that he is a shareholder and the percentage of the capital he holds. Moreover, the shareholder, if applicable, needs to declare the names of representatives he appointed and custodians of the shares. This information is what will be registered with the UCB.

The scope of the Act covers owners of bearer shares issued by:

  1. Uruguayan Corporations
  2. Partnerships with bearer shares
  3. Agrarian Associations
  4. Trusts
  5. Investment Funds
In principle, the obligation to identify shareholders is only mandatory for entities formed under Uruguayan Law.

Once the bearer-share company receives the sworn statement from the shareholder, it must submit the information received to the UCB.

The information the company will receive from the shareholder, and ultimately what the UCB will also receive, is about the shareholder (individual or legal entity), although the company is not required to inform about the "beneficial owner". This means that if the shareholder is a foreign-bearer-share company the information to be disclosed to the UCB is about that particular foreign company.

The period to perform these sworn statements is still not determined but it will be set out by the regulation that will follow the Act.

Regarding shareholders of foreign entities, with bearer shares, which have interests in Uruguay, the ones that need to register –in the same terms and conditions as the Uruguayan companies- are those whose companies have their main place of business or a permanent establishment in Uruguay. This means that shareholders of foreign-bearer-share companies that only own real property in Uruguay, are not subject to these requirements.

The Act sets forth certain sanctions in case of breach of the requirements discussed above, being one of them a fine that, depending on the case, can amount up to USD 20,000 either for the company or for the shareholder. Moreover, and in spite of the fact that there are other sanctions, in the case of the shareholder that did not fulfill with the requirements, he will be unable to exercise his rights as shareholder (dividends, appraisal rights, etc.). According to the Act, the shareholder has the possibility of directly registering himself before the UCB if the company did not comply with the Act. The registration, not only the one before the UCB but also the one before the company, will be evidenced through certificates issued by the UCB and by the company depending on the case. It is also laid down by the Act that, in the case of transfer of bearer shares whose shareholder is not registered before the UCB, the acquirer of the shares will be jointly and severally liable for the unpaid sanctions.

A simplified proceeding to convert bearer shares into nominative or registered shares is also regulated. Inasmuch as certain legal requirements are complied with, the company can perform the required change in by-laws without authorization from the Uruguayan Secretary of State, which will be informed at the end of the proceeding. This fast track proceeding is in order to encourage the company with bearer shares to convert its shares into nominative or registered shares.

In conclusion, this is an important piece of legislation that modifies the Uruguayan Corporate Law and, specially, bearer-share companies. The recently approved Act is not comprehensive and will be supplemented by future regulations.

This memo is an introductory approach to the new Act. Should you have any doubts or need further information please do not hesitate to contact us.