Slow phase out of anonymous corporate ownership likely with new law

Illustrative photo: Czech Television

The abolition of anonymous shares in companies, and as a result the ending of firms with no clear ownership, came into force at the end of June with thousands of such firms still in existence. The phase out, part of the drive to make corporate life more transparent and aid the fight against corruption and criminality, looks like taking some time to take full effect.

Illustrative photo: Czech Television
Midnight on Monday was the deadline for anonymous shares to disappear from the Czech corporate scene and with them the possibility of Czech registered firms with no clearly traceable owners. But the move designed as part of the fight against corruption and criminality will not by all accounts make a dramatic overnight impact.

Consultancy company Bisnode estimated on the eve of the new law coming into force that 11,254 anonymous companies were still registered in the country, that’s a drop of just under 1300 compared with the state of play in March. But the latest total still makes up 44 percent of the total number of Czech joint stock companies in existence.

Such companies have frequently been labelled in the past as fronts for criminal and illegal activity. The Czech energy regulator pinpointed firms with anonymous owners as the most likely to be involved in fraud and has been in the forefront of calls to block payments and subsidies to such companies or prevent them from winning public contracts. These sanctions will now take effect.

Anonymous shareholders who do not put a name to their shares will also lose the right to exert their rights within and in connection with the company, such as voting at meetings and getting dividend pay outs.

But the defenders of such companies argue that they are often a one off temporary solution to corporate problems, such as transferring property, and many of those listed are in fact dormant with no harmful impact on the rest of the corporate world or population. Many of those with no real activity will simply be phased out.

Others argue that criminals or those seeking to conceal their identity can always find frontmen or base their operations in the numerous offshore locations which cater for the shy of the corporate world if the Czech Republic is no longer so obliging.

The disappearance of companies with anonymous owners looks like taking some time to take effect. The influential Czech Chamber of Commerce had called for a five year before the final proceedings for the changeover had to take place.

In a nod to pragmatism, it looks like the Ministry of Justice has agreed that companies will be given some time before the authorities start breathing down the necks of firms that are slow to change their statutes according to the new law. But the pressure for change will be maintained. Courts can set target dates for companies to fulfil the required procedures and if they fail to comply it can order their eventual liquidation.