Once again, we address the importance of corporate stock transfer transactions; a topic that we have previously addressed in the series of articles on “Mergers and Acquisitions in Nicaragua” and “Tax Effects of Stock Transfer Transactions”. Recently, this topic has gained great relevance, since the legal system applicable to this type of operations has been reformed, establishing new mercantile and tax obligations. In this article we will give a brief summary of the different steps that must be followed, however, we warn that the obligations can be complex and comprehensive advice is required for each specific case.
In accordance with Article 232 of the Commercial Code of the Republic of Nicaragua, the ownership of the shares is proved by means of the endorsement and the inscription of this in the Stock Registry Book of the issuing company. These are indispensable elements for the transfer, since, in case of not complying with them, said transfer will not be effective with respect to the company or third parties.
In the same sense, Article 156 of Law No. 1035 of the Reform to the Public Registry Law, establishes the obligation to obligatorily register in the Public Mercantile Registry the changes in the shareholding structure, participation or ownership of the mercantile companies. In other words, in order to carry out a transfer of shares it is indispensable that the share certificate of the owner be endorsed – for the amount of shares to be transferred – in favor of the new shareholder, this change in the shareholding composition of the company must be registered in the Stock Registry Book of the issuing company and in the Public Mercantile Registry, otherwise it will not have any effect before the company and third parties.
Additionally, according to the aforementioned reform law and the Circular of the National Direction of Registries No. 009-2021, the mercantile companies that have as partners national or foreign legal entities must declare in detail in the Final Beneficiary Registry all the levels in which the shareholding composition is distributed until determining the natural persons identified as final beneficiary, therefore, any transfer of shares in favor of a legal entity will obligatorily generate the obligation to update the Final Beneficiary Registry of the issuing company.
Finally, from the tax point of view – on which we have delved in previous articles – it is worth mentioning that any disposal of shares, whether for consideration or free of charge, under any legal figure, may be subject to Income Tax on Capital Gains and Losses. Ergo, in any share transfer operation it becomes indispensable to verify whether a capital gain subject to taxation has been generated, for such purposes, it must be determined whether there is a positive variation in the value of the taxpayer’s assets derived from the disposal, assignment, transfer, etc.
The Income Tax on Capital Gains and Losses has a 15% rate on the applicable taxable base, which depends on the type of transfer. In the case of onerous acts, the taxable base corresponds to the difference between the acquisition value of the share and the transfer value (the agreed value or the market value, whichever is higher); while in onerous acts the gain will be equal to the total value of the transfer according to its market value.
The matter becomes complex at the moment of calculating the market value, since the Nicaraguan legislation does not indicate a mechanism to make this calculation, however, the legislation does indicate that the taxable base will be made taking into consideration this value. Generally, international or recognized valuation methods are used in the commercial practice, such as the book equity value of the issuing company, however, it is not possible to guarantee that the administrative authority will use the same criteria, thus causing a certain legal uncertainty in this type of operations.
In order to support this type of operations, before third parties and any administrative authority, it is always advisable to have the following documents and legal acts:
If applicable, according to the corporate agreement and the bylaws of the company, the waiver of the right of first refusal by the rest of the shareholders.
The subscription of the purchase and sale agreement or donation agreement where the acquisition and transmission value of the shares is reflected (This can be in a public instrument or private contract) (This is an optional document, but advisable).
The endorsement of the share certificates object of the transaction.
The registration of the new owners of the shares in the Share Registry Book of the company issuing the securities.
The supporting documents of payment (in case of an onerous operation).
Registration of the change of the shareholding composition in the Public Mercantile Registry and the Registry of Beneficial Owners.
That the tax withholdings have been duly made, paid and declared to the tax authorities in due time and form.
These types of transactions are usually complex and have effects in different areas of law, generating a series of commercial and tax obligations, both for the issuing company and for the parties transferring the security. It is always advisable to carry out an integral analysis of the operation before materializing it, in order to comply with all the legal obligations and to reduce the possible contingencies that may arise.