Austria: Mandatory Switch To Registered Shares For Non-Listed Companies

FATF Initiative and Austrian Implementation

Under a proposed amendment to the Austrian Stock Corporation Act (AktG), stock corporations (AG) whose shares are not traded on a stock exchange will no longer be able to issue bearer shares. It will be mandatory for closely held AG's to issue registered shares and to keep an up-to-date share ledger. The companies will in addition be required to keep on record bank account details of each shareholder as well as information on the ultimate beneficial owner of the shares concerned. All financial transactions between the company and the shareholder will need to be made via the account on record.

The proposed new rules are the result of a report by the Financial Action Task Force (FATF), which are intended to inter alia increase the transparency of ownership structures of closely held corporations. This should reduce the risk that ownership in such companies is used for money laundering purposes.

The Austrian reaction to this report has been a so-called "transparency initiative". The initiative was approved at government level in early 2010 and entered the legislative process still during 2010. While the new law was initially intended to enter into force in January 2011, delays at the parliamentary level have meant that the new rules will not become law before July 2011.

Mandatory Switch – Transition Period

Under the current provisions of the AktG, stock corporations are generally free to choose whether they want to issue registered or bearer shares. If only interim certificates are issued, these must be registered in the name of their respective holder.

The proposed new rules are further evidence for the increasingly visibly split of the Austrian company law into regulations applicable only to listed companies and regulations applicable to non-listed companies.

This is generally a sensible distinction to be made. The requirements of a publicly owned and listed company are different in material respects from those of a closely held company. At the same time, it has to be said that the current proposal also means an increase in the administrative burden for smaller AG's.

On a positive note, the information which a company must collect (and keep up-to-date) under the proposed new regime may be of value to the company from an investor relations perspective. Furthermore, companies will be able to do away with public notices for their shareholder meetings and send invitations to the address of the shareholder on record. This should help to save on costs.

Under the proposal for the new law, existing companies with bearer shares will have to switch to the new system and, as a consequence, will also need to amend their articles of association. Since the proposed new rules are still in the process of parliamentary review, it is not yet clear what transition periods will be provided for. The expectation is, however, that companies will get until 2013, perhaps even early 2014 before the new rules must have been fully implemented.

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