No more bearer shares in Nicaragua!

The Nicaraguan government in recent years has carried out important reforms aimed at creating a competitive climate to encourage foreign investment, which have contributed to the steady growth of the national economy.  In this context, the decision to eliminate bearer shares of corporations has recently been adopted, with the objective of increasing the control and transparency of the information of the final recipients of the company’s profits and strengthening the system for the prevention of money laundering in Nicaragua.

In order to achieve these objectives, Law 977 was enacted "Law against Money Laundering, Financing of Terrorism and Financing the Proliferation of Weapons of Mass Destruction", "Law 977", which came into force last July 20th and encourages to implement measures to protect the national economy and the integrity of the financial system.

To materialize these purposes, from the commercial point of view, Law 977 is relevant for adopting the following decisions: 1.- Prohibition of issuing bearer shares; and 2.- Prohibition of conversion of the registered shares to bearer shares.

These measures will have implications for those companies that at the date of entry into force of Law 977, had in circulation or its Social Pact allowed the issuance or conversion of bearer shares. According to Law 977, such companies must convert these registered shares in a term not greater than 12 months, so that the maximum date to execute this conversion is July 19th of the year 2019.

Besides the conversion of bearer shares to registered shares, it is necessary to make a reform in those Social Pacts that allow the issue or conversion of bearer shares. Otherwise, Law 977 is established as a coercive mechanism that will not be possible to dispose of the shares in acts or contracts once the term for the conversion has elapsed, meaning, that the corporate rights can not be exercised until the effective conversion of shares and the amendment to the Social Pact is registered in the competent Public Registry, for which it is recommended that the amendments are executed as soon as possible to avoid future obstacles in the celebration of their business.

Sergio Escobar
Consortium Legal Nicaragua