Castellán

On today's date (08.01.12), Law 18.930 comes into effect, which establishes the obligation for anonymous companies with capital represented in bearer shares to provide information on the identity of their holders. Given that the majority of commercial companies established in the country are anonymous companies and have their capital represented in bearer shares, this regulation is of significant importance.

A bit of history and context

Bearer shares are those in which the owner's name is not indicated on the share certificate, and they are transferred by simple delivery. In contrast, nominative shares are those that indicate the owner's name on the share certificate and in an internal register of nominative titles of the company and are transferred by endorsement and registration in the mentioned register. The Uruguayan legal system is currently the only one in Latin America that authorizes companies to have their capital represented in both bearer and nominative shares. This possibility of issuing bearer shares, combined with the lack of a registry identifying their holders, is part of the reason why the Organization for Economic Cooperation and Development (OECD) placed Uruguay on its \"gray list.\" In order to be removed from this list, the country had to adopt measures to increase the possibility of cooperation and exchange of tax information between States. In this context, it could have directly eliminated the bearer share regime, forcing all these companies to transform their bearer shares into nominative shares. Finally, it chose to maintain the current regime authorizing the representation of capital in bearer shares, but imposing the obligation to inform the Central Bank of Uruguay of the identity of the holders.

Changes under Law 18.930

Essentially, the Law that comes into effect on the specified date provides for the obligation of holders of bearer shares to submit to the board of directors or administrator of the anonymous company a sworn statement containing their personal data and the nominal value of their shares. The identification covers not only the owner, but also the holder, custodian, or representative. It also provides for the obligation on the part of the company, through its Board of Directors or administrator, to submit to the Central Bank of Uruguay a sworn statement with the information received from its holders, identifying the integrated capital of the company and the percentage of shares held by each holder.

Sanctions for non-compliance

The sanctions provided for by the new Law in case of non-compliance are significant. Regarding the holders of shares, it is established that they will be unable to exercise shareholder rights, with, for example, the company being prevented from paying dividends or profits. Likewise, fines are announced. Regarding the company, not only fines are established, but it also clarifies that the failure to submit the sworn statements within the deadline will imply the lack of activity of the company, leading to the suspension of the single certificate of the General Tax Directorate (DGI).

Confidentiality of the provided information

The new Law expressly provides that the information provided will be confidential, with access restricted to the Financial Information and Analysis Unit of the Central Bank of Uruguay, the National Anti-Money Laundering Secretariat, the Transparency and Public Ethics Board, or when there is a reasoned decision by the Criminal Court or the Family Court in the case of alimony. However, the General Tax Directorate (DGI) may also access this information in the event of foreign requests under international agreements ratified by the country, and in the case of inspection actions related to specific taxpayers. As we can see, the Law clearly favors the DGI and goes against any other third party or creditor. This becomes particularly relevant considering the number of individuals who are seized by this Tax Administration and have their assets protected in an anonymous company under the apparent security provided by holding bearer shares.

Transformation of shares into nominative shares

The Law not only indirectly excludes the duty to inform holders of nominative shares, but also establishes a special regime that streamlines and facilitates the eventual transformation of bearer shares into nominative shares, especially providing that in such cases companies may request the exclusion from the register created by this Law. This process basically involves holding a shareholders' meeting where such a resolution is adopted, registering the amendment in the Commercial Registry, making publications, and notifying the National Internal Audit.

Increased anonymity of nominative shares

Since this Law does not apply to companies with nominative shares, in these types of companies, the identification of their holders will continue to emerge exclusively from the share certificates held by the shareholders themselves, and from the aforementioned Register of Nominative Titles, which is an internal book kept by the company. Therefore, unless a legal action is initiated for the company to provide this information, it will not be easily accessible to any third party or any of the mentioned authorities: DGI, BCU, AIN, etc. In contrast, with the information obligations provided by this Law for holders of bearer shares, as mentioned, relevant market agents will be able to easily access this information. Therefore, as the title suggests, and although it may seem contradictory, the reality with this new Law is that \"anonymity\" will be more present when the company's capital is represented in nominative shares.

Is the change to nominative shares advisable?

For the analysis of the advisability of a reform from bearer to nominative shares, it is essential to consider the difference in the tax treatment of one type of shares over the other, especially considering a hypothesis of future transfer of such shares to third parties. In this regard, it is worth noting that in the context of Value Added Tax (VAT), there is no difference between nominative or bearer shares, as both scenarios benefit from a specific exemption. There is also no difference in the personal assets of each of the individuals involved in a potential sale transaction. The taxation on capital is mainly represented in our country by the Wealth Tax (IP) that taxes the difference between assets and liabilities, valued and fiscally admitted, of both individuals and legal entities physically located in our territory. Since this tax taxes the company's assets \"in its own right,\" shareholders who hold bearer or nominative shares in their personal assets will not be taxed on them. However, the distinction may be relevant in terms of income tax when the holder is an individual. In this scenario, if we are dealing with a sale of bearer shares, the income generated by the transaction is expressly exempted, both in terms of Personal Income Tax (IRPF) and Non-Resident Income Tax (IRNR). In contrast, if they are nominative shares, the income from the sale is considered a capital gain and is taxed at a rate of 12%.

Final Considerations

In our country, the vast majority of commercial companies are anonymous and have their capital represented in bearer shares. The basis for this reality in most cases lies in the legitimate interest of their holders to keep this information confidential. Respecting this interest has been a fundamental support of our economic system. The norm that comes into effect on today's date substantially modifies the decision made, as it determines that information about the ownership of shares in anonymous companies will be more easily accessible in the case of companies that have their capital represented in bearer shares than in those that have it in nominative shares. Therefore, whenever the holders are individuals, and there is no intention of a future sale, the transformation of bearer shares into nominative shares seems like good advice for all market operators who legitimately wish to restrict access to information about the shares they own.

Montevideo, September 2013.