The annual general meeting of a limited liability company can decide upon incorporating the company’s shares into the book-entry system. In such case, the share certificates issued by the company shall be replaced by registrations to book-entry accounts maintained in the central securities depository’s data system (the book-entry system).
Book-entry form is mandatory for all securities that are publicly traded or are financial securities. Pursuant to the EU Central Security Depository Regulation (CSDR) companies may also incorporate their shares to a foreign Central Security Depository (CSD), in which case Finnish law doesn’t govern the actions of the foreign CSD. In Finland, Euroclear Finland Oy is the CSD pursuant to a license from the Council of State. A company belonging to a book-entry system is obligated to keep a shareholder register, in which it must single out the shares owned by a shareholder.
The board of directors shall maintain a shareholder register of the shares incorporated in the book-entry system and of the shareholders who own such shares. The shareholder register must contain the name of the shareholder or the person responsible of the registration, their social security code or other means of identification, contact information, as well as information regarding payments and taxation. The shareholder register shall shall also contain information regarding the number or shares in each share class and the representative of the CSD, who maintains the register of the book-entry account where the shares are registered.
The CSD maintains a register of book-entry accounts, book-entries registered in such accounts as well as rights (such as pledges) and obligations pertaining to book-entry accounts and book-entries. It should be noted that book-entry shares owned by foreign (non-Finnish) shareholders may be nominee registered, in which case the custodian, typically a bank or a broker administering the foreign owner’s book-entry account, shall be entered on the list of shareholders instead of the owner.
Shareholders of a company incorporated into the book-entry system are entitled to exercise shareholders' rights only after the shareholder has been entered on the list of shareholders maintained by the CSD (i.e., when the book-entries are registered on the shareholder’s book-entry account). As regards the right to participate in a general meeting of the company and the right to receive dividend, such rights exist for shareholders entered on the list of shareholders on the record date of the relevant general meeting or dividend payment. Also, for share issues and other corporate action the right of participant is determined by list of shareholders as at the record date. The use of record dates facilitates administration of corporate actions, especially in companies where the book-entries are actively traded. The company sets the record date for the corporate action in conjunction with the relevant corporate resolution.
Only account operators authorized by the CSD may enter registrations in the book-entry accounts in the CSD’s system. Each shareholder of a company incorporated into the book-entry system must, therefore, enter into an agreement with such account operator regarding the opening and management of a book-entry account.
Bona fide third parties are entitled to rely on the correctness of information in the book-entry system, such as information regarding owners of book-entries and registered pledges, and that such information corresponds to actual legal relationships. Subject to certain conditions, the account operators are also liable irrespective of negligence for, e.g., damage caused by erroneous registrations.
A company that decides on incorporation into or withdrawal from the book-entry system shall comply with the provisions of the Limited Liability Companies Act and the Act on the Book-entry System regarding such decisions, provision of information thereof to the shareholders, and registration of the shareholders’ rights into the book-entry system.