Panamanian companies with bearer shares must deposit their certificates with an approved custodian – such as a bank, trust company or law firm registered in Panama.
This move aims to combat fraud and money laundering activities, in response to pressure from international organizations.
Immobilization of Bearer Shares
Bearer shares were once widely utilized in tax havens and regulated jurisdictions worldwide until recently, when they came under attack from global anti-money laundering and countering financing of terrorism watchdogs. Under pressure from organizations like OECD, many jurisdictions either eliminated bearer shares entirely or limited their use significantly – Panama was among them and passed Law 18 (2015) which severely restricts them by mandating companies deposit bearer shares with an approved custodian.
As a result, most banks in Panama no longer accept clients who hold bearer shares in their companies, forcing many to switch over to nominative shares instead. While nominative shares remain easily transferrable, it now requires having the share certificate present for valid transactions to take place.
Under new restrictions, bearer shares must be deposited with a professional depositary that must maintain a register identifying shareholders and transfers of such shares. Any bearer shares not deposited within six months from the effective date of these laws lose all their rights (such as voting and dividend receipt) and must be cancelled via capital reduction; while shares not yet deposited should be identified with an acknowledgement of transfer recorded on their share certificate.
Custody of Bearer Shares
Bearer shares are a favourite tool of money launderers and tax evaders alike, according to recent revelations by The Guardian newspaper. Over 25% of the 214,000 shell companies Mossack Fonseca helped establish between 1977 and 2015 held shares held through bearer ownership – both tax havens as well as regular countries utilized them as tools of fraud.
With the implementation of Law 47, shareholders of Panamanian corporations will be required to deposit their bearer shares with an approved custodian – such as a bank, trust company or law firm – which will issue custody certificates and keep records of who deposited their bearer shares with them.
In accordance with Law 18, if a bearer shares are not delivered within the specified timelines or basic identity information is not submitted within an established deadline, the issuing corporation will cancel their certificate, effectively turning them into nominative shares.
The new law also stipulates that, should a corporation wish to implement a regime for custody of bearer shares before December 31 of this year, they will need to do so through a Resolution from their Board of Directors or Shareholders authorizing such application and recording it at the Public Registry. This step is required in order to prevent future issues of bearer shares after this deadline since all corporate charters will automatically amend to prohibit their issuance and convert them to nominative shares after such date.
A share is a unit of ownership in a corporation or financial asset and grants its holder the right to a portion of earnings and assets of that business, as well as voting rights in major decisions. Panama’s legal system permits foreigners to own shares in domestic corporations that engage in virtually all areas of remunerative activity; regardless of business type or activity nature Panama offers an array of tax benefits and incentives for major investors, including business visas.
Nominative shares in Panama corporate landscape serve a similar function to leading actors on a playbill: giving shareholders an identity and personalized stake in its fortunes. Unlike bearer shares, which can only be issued in bearer’s names without being issued explicitly in their names or given out individually, nominative shares explicitly issued under their names give voting privileges and higher claims on earnings/assets than bearer ones do.
Law 47, passed on August 6, 2013, has resulted in the immobilization of bearer shares and mandates that any company with existing bearer shares register their Board resolution authorizing adoption of Custody procedure with the Public Registry or amend their Articles of Incorporation to prohibit further bearer share issuance and make all shares nominative (registered). Once registered, companies will need to deposit bearer shares with an approved custodian who will issue custody certificates to holders of bearer shares.
Transfer of Certificates
The new law places an obligation on anyone holding Panama bearer shares to transfer them to an approved custodian, such as a lawyer or law firm, bank, independent fiduciary, or another authorized entity that will uphold due diligence standards while remaining confidential in regards to ownership. Any such individuals or entities must be registered on a list maintained by the Supreme Court.
Law 47 has changed how transfers of bearer share certificates in Panama can now be completed; previously this process involved simply handing them directly over. Now however, any transfer requires not only that an original certificate be handed over but also that its new owner file an affidavit attesting to ownership and transference with their custodian.
Understanding Panama’s transition from bearer shares to nominative shares will be essential for investors and companies looking to take advantage of its vibrant corporate theater. Nominative shares provide shareholders with a sense of identity and ownership over a company’s fortunes, providing personalized ownership stakes.
Bearer shares were once common among many offshore jurisdictions and even “normal” countries until recently; however, due to documents leaked from Mossack Fonseca’s offices leaking out, these jurisdictions have since phased out bearer shares and require all shareholders to register their shares with an authority such as Mossack Fonseca.