This post first appeared as Blog post at FIN LAW.
The law on financing future-securing investments (Future Financing Act) largely came into force on December 15, 2023. Among other things, the law is intended to make it easier to access the stock market and raise equity capital. The Future Financing Act changed the law on electronic securities (eWpG) and bearer and registered shares are now expressly covered by the scope of application of the eWpG. As a result, the share experiences a dematerialization.
The previously common practice of securitizing shares, for example in a global certificate, is no longer mandatory. Rather, the electronic share is also treated as a thing, whereby security and transfer functions such as a bona fide purchase for electronic shares are established. An electronic security is issued by the issuer making an entry in an electronic securities register instead of issuing a security certificate. The following explanations are intended to highlight some of the practical aspects associated with the new electronic share.
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Registered shares can be issued as crypto securities
The eWpG establishes two types of electronic securities, the central register security and the crypto security. The central register security is an electronic security that is registered in a central register. Such central registers can be maintained by securities depository banks or a custodian. A crypto security is an electronic security registered in a crypto securities register.
A crypto securities register must be maintained on a tamper-proof recording system in which data is logged chronologically and stored protected against unauthorized deletion and subsequent changes, such as a blockchain. This makes it possible to issue tokenized shares. Both the central register security and the crypto security can be issued with different ownership in individual or collective entries.
The Future Financing Act stipulates that registered shares can be issued as crypto securities and central register securities. Bearer shares, on the other hand, may only be issued as central register securities. With regard to a possible IPO, however, it should be noted that only central register securities are recorded collectively for settlement in the securities broker and therefore only those are suitable for stock exchange trading, unless an exception applies under the current DLT pilot regime.
The statutes of the stock corporation must provide for the issue of electronic shares
In order to issue electronic shares, the statutes of the stock corporation must exclude securitization. Registered shares in the form of a crypto security can only be issued if the articles of association expressly permit this. In the case of existing shares, an issuer can replace a security that was issued by means of a collective certificate or by means of individual certificates that are held in collective custody at any time and without the consent of the entitled parties with a central register security with the same content.
If the articles of association exclude the securitization of electronic shares, they must be changed. In all other cases of conversion, the approval of the shareholders is required. Conversely, electronic shares can also be converted into certificated shares. Because the exclusion of securitization must be provided for in the articles of association in order to issue electronic shares, conversion into a paper certificate would require that the exclusion of securitization be lifted.
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