We have recently participated in various company acquisition transactions, shareholder dispute resolutions, and share sales, all of which resulted in changes of directors and/or shareholders as a consequence of those transactions.

Whenever a director or shareholder changes within a corporation, a series of steps must be taken to formalize and report such changes. To facilitate the implementation of these changes, we outline below each of the steps that must be carried out.

Change of Directors

Whenever directors are changed or reappointed within a corporation, these changes must be reported to the National Trade Registry. Until this notification is made, actions taken by the new directors will not be enforceable against third parties, meaning that, in practice, they will not be able to act on behalf of the company.

In addition, the removal of the outgoing director and the appointment of the incoming director must be reported to the Tax Authority (DGI) and the Social Security Bank (BPS). This is essential because, in the event of director liability, tax authorities take action against the directors on record.

If the company is a free trade zone user, the change must be reported to the Free Trade Zones Area, and if the company is subject to Central Bank (BCU) oversight, the change must also be reported to the BCU.

Change of Shareholders

A change of shareholders typically arises from a share purchase transaction — whether of part or all of the share package when a company is acquired — or from an inheritance transfer upon the death of the shareholder.

In the case of a share transfer, a distinction must be made between bearer shares and registered shares.

If the shares are registered, the transfer requires endorsement of the share certificate, delivery thereof, and registration of the change of shareholder in the company’s registered share ledger. The transfer of registered shares by individuals is currently subject to personal income tax (IRPF), at a rate of 2.4% on the sale price.

If the shares are bearer shares, mere delivery is sufficient for the transfer, although we recommend executing an agreement setting out the terms of the transaction and any potential liabilities of the seller. In this case, the new shareholder must notify the company, so that the company may report the change of shareholder to the BCU.

The transfer of bearer shares is not currently subject to personal income tax (IRPF), although the Budget Accountability Law provides that, starting in 2014, they will be taxed in the same manner as registered shares.

In certain cases — such as companies registered with the BCU that engage in financial intermediation activities, cable television operators, etc. — government approval is required in order to transfer shares.

Another aspect to keep in mind when transferring shares is the requirement to notify or seek approval for the transaction from the Competition Promotion and Defense Commission, which is analyzed in detail in the following article.