In our previous articles, we have kept you informed about the development of new legislation in connection with the registration of beneficial owners, which responds to the obligation to transpose Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive 2015/849 on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing and Directive 2009/138/EC and 2013/36/EU (hereinafter the “V. AML Directive”). Along with the new law comes an amendment to the Public Registers Act[1] and the AML Act[2]. After the return of the bill by the Senate, the Chamber of Deputies maintained its original wording. The Act was signed on 22 January 2021 by the President, and on 3 February 2021 it was published in the Collection of Laws under No. 37/2021 Coll., and it takes effect on 1 June 2021.
In general
In practice, there was a frequent neglect of the obligation to register beneficial owners, which was also contributed to by the absence of sanctions or fines that would have better enforced the obligation. However, the new Act No. 37/2021 Coll. on the Registration of Beneficial Owners (hereinafter the “Registration Act”) brings new conceptual changes in this area together with new institutes, which aim to reflect European requirements and streamline the obligation to register.
Definition of the term beneficial owner and related terms
According to Section 2 letter e) of the Registration Act, the beneficial owner is deemed to be any natural person who is final recipient or person with ultimate influence.
Final recipient (Section 3 of Registration Act):
- in the case of a legal person, it is any person who can directly or indirectly receive more than 25 % of the total property benefit generated by the activity or liquidation of the legal person, and does not further pass on this benefit; or
- in the case of a business corporation, it is any person who directly or indirectly has the right to a share in the profit, other own resources or liquidation balance of the business corporation greater than 25 % and does not further pass on this share of the benefit.
For the purposes of calculating indirect benefits, a distinction is made between the terms of chaining and branching. For the purposes of calculating the amount of indirect benefit-sharing, in the case of (i) chaining, the benefit-sharing to which the related party or legal arrangement is entitled shall be multiplied and (ii) branching, the products of the benefit-sharing from the individual chains shall be added together. In this context, we recommend that you look at the explanatory memorandum, which contains sample examples of chaining and branching calculations, or in the case of a more complex structure, to obtain professional assistance in determining the real owner.
Person with ultimate influence (Section 4 of Registration Act) in a business corporation is any natural person who is a controlling person under the law governing the legal relations of business corporations (in a housing and social cooperative, this is any natural person who is a member of a statutory body).
For the purposes of calculating the amount of the indirect share of voting rights, in the case of (i) chaining, the shares of voting rights held by the related parties or legal arrangement shall be multiplied, except for the share of voting rights in the corporation subject to the calculation:
- 100% shares in voting rights establishing the presumption of control under the law governing the legal relations of business corporations are counted, and
- 0% calculates shares not listed in the previous point,
(ii) branching adds the products of shares in voting rights from individual chains. We again recommend looking at the explanatory memorandum, which contains sample examples of chaining and branching calculations in this context, or in the case of a more complex structure, to obtain a professional assistance.
A more specific definition of the terms listed in the Registration Act helps to clarify and at the same time strengthen legal certainty. The law also contains several rebuttable presumptions within the definition of the beneficial owner, which may specify the designation of the person (e.g. person in top management). Furthermore, the beneficial owner is not the state or municipality, a state-owned enterprise or a political party.
The new legislation emphasizes the identification of the real beneficial owner, it is not enough to be satisfied that if the beneficial owner cannot be easily identified, the beneficial owner will be stated a statutory body on the basis of a presumption, as was the case in the previous legislation.
Registrant
According to the Registration Act, a registrant is a legal entity that has a beneficial owner. Furthermore, it may be a trustee or a person in a similar position at the foreign trust fund of a legal arrangement. It is the duty of the registrant to obtain and record long-term and accurate information that correspond to the current state. The beneficial owner must develop sufficient cooperation and provide this information to the registrants. The consent of the beneficial owners entered in the register is not required, as for example in the case of the entry in the Commercial Register, this obligation does not follow from the Registration Act.
We would also like to point out that the obligation to register, resp. the obligation of the registrant to obtain and record complete and accurate information in the long term, which corresponds to the current state and ensure their entry in the register of beneficial owners or their actuality in it, falls within the company´s management, i.e. the responsibility for compliance with the obligations lies with members of the statutory body.
Entry of data in the register
The entry of data in the register of beneficial owners will be carried out by court or notary public. As far as the courts are concerned, the entry of data in the register of beneficial owners will take place as a classic court procedure similar to the register procedure and will be conducted by the registration court. It will be necessary to file an application on the prescribed form to initiate proceedings. The application must contain all the requisites, otherwise the court will not deal with it at all. In the case of entry, change and deletion of data in the register of beneficial owners, the law for business corporations (with the exception of housing and social cooperatives) stipulates a court fee of CZK 4,000.
An alternative to entering the data in the register through the court is to enter the data through a notary public, while it can be stated that this is generally more preferred. Even the explanatory memorandum to the Evidence Act itself stipulates that the amounts of fees are set so as to motivate the applicant to use a notary public for the registration of the beneficial owner. Notaries’ fees for registration of the beneficial owner will be adjusted in the notary tariff and will always be lower than the fee for registration by the court. In view of the above, it can be stated that the entry of data in the register of beneficial owners through notary can be, both in terms of less administrative complexity, less formality of proceedings, and from financial point of view, certainly recommended.
Proceedings on irregularities
In the event of a discrepancy between the actual and the registered situation, the competent court shall decide by resolution and set a time limit for the elimination of such irregularities. If no remedy is found, the court may initiate proceedings for the irregularity, both ex officio and at the request of the public authority. The discrepancy may also be reported by the liable person according to the AML Act. Together with the resolution to initiate the irregularity proceedings, a note will be entered in the register of beneficial owners with an indication of what the irregularity is seen.
Sanctions – detection of voting rights or restrictions on the payment of a share in the benefit
A major change compared to the current legislation will be the introduction of sanctions for breaches of the obligation to register the beneficial owner. The Registration Act stipulates as a sanction, on the one hand, the impossibility of paying a share in the benefit (profit and own resources), but also the impossibility of participating in the voting of the highest body of a business corporation.
The discrepancy between the actual and the registered state may also lead to a suspension of the shareholders’ voting rights, restrictions on the payment of a profit or tortious liability. The decision of the sole shareholder may also be invalid if this person is not registered as the beneficial owner.
Adherence to the obligations newly established by the Registration Act in the sense of ensuring the registration of the beneficial owner (and possible subsequent ensuring the up-to-dateness of this record and the data contained therein) will now be important with regard to ensuring the functioning of the company when the non-registration of the beneficial owner may have a fundamental impact on the company´s shareholders consisting in the impossibility of paying a share in profits or other own resources or the impossibility of participating in voting in the decision-making of the highest body of a business corporation. The right to a share in the profit or other own resources, which according to the previous sentences will not be paid by the end of the accounting period in which it was decided to pay it, expires.
Offenses
According to the Registration Act, it will now be considered an offense:
- if the registrant does not ensure, even within a reasonable period set by the court in the resolution on the elimination of the irregularity or its rebuttal, the entry of any data in the register of beneficial owners;
- if the registrant fails to record the new data even within 15 days of the court’s decision on the irregularity in the record becoming final, if the court deleted the incorrect data without replacement; or
- failure to provide the necessary co-operation to the registrant, if the breach has been confirmed by a court, whereas this offense may be committed not only by the beneficial owner but also by the final recipient, the person with ultimate influence and the person through whom the ultimate beneficiary or the person with ultimate influence may benefit.
It is possible to impose a fine of up to CZK 500,000 for administrative offenses. Furthermore, it may be impossible to pay the share of profit and own resources to persons who are not listed in the register of beneficial owners or to pay the share of profit and own resources to business corporations that do not have any owner registered in the register of beneficial owners. These persons will not also be able to participate in the voting of the highest body of the business corporation.
Recorded information and further novelties
The Registration Act expands the range of information that must be entered in the records. The records must also state, for example, the day on which the natural person became the beneficial owner, or a description of the structure of relations with precise data on the persons appearing in it. The obligation of registrants will now also include control and monitoring of the current and registered status. In the event that these facts change, the registrant must submit without undue delay (within a few days) a application for entry in the register of new current data.
A novelty is also the public of the information entered and the possibility of making a partial extract from the register, the complete extract from will be provided only to selected persons and institutions. The register of beneficial owners will now be partly a public register, i.e. certain selected data will be available and visible to the public, but not all data.
Automatic transcription
On the basis of an automatic transcript, data from public registers are automatically entered into the register of public owners under the conditions stipulated by the Registration Act. In the case of limited liability companies, a shareholder with a share of more than 25 % or a person who is the beneficial owner of a legal person who is a shareholder with a share of more than 25% shall be entered in the register, provided that another shareholder does not own a larger share. In the case of a joint-stock company, the sole shareholder of the legal entity shall be entered as the beneficial owner. However, the automatic transcript may create inconsistencies for this reason, so it is important to check (monitor) the up-to-dateness of the data regularly at the same time and, if necessary, correct this situation.
Furthermore, the automatic transcription will only apply to those companies that have not yet registered anything in the register of beneficial owners according to the current legislation; if the company has already made any entry in the register of beneficial owners, the automatic transcript will not apply, and the company will have to add new information by itself. A registrant who has ensured the entry of data on its beneficial owner in the register under the current legislation may propose to the court or ask a notary that its beneficial owner is automatically registered in future in accordance with Section 38 of the Registration Act.
Deadlines for entry in the register
Business corporations that have not yet registered in accordance with the current legislation, although they were obliged to do so, will have to enter the data without undue delay after the entry into force of the Registration Act, i.e. on 1 June 2021. If business corporations have already made a registration in the past, they must adapt its entry to the requirements set out in the Registration Act by 1 December 2021, they are therefore favoured by a longer period for bringing the registration into line.
Conclusion
The new law regulates the issue of registration of beneficial owners and eliminates the shortcomings established by the previous regulation.
With regard to the fundamental extension of possible negative impacts on registrants who do not comply with the rules of the Registration Act, we strongly recommend familiarizing with the new legislation and make appropriate entries in the register of beneficial owners and set internal rules for registration of beneficial owners.
In case of any questions concerning the issue of beneficial owners and their registration in the light of the above and current legislation, we are at your disposal. Do not hesitate, so contact us.
Mgr. Bc. Štěpánka Vajdová, lawyer – vajdova@plegal.cz
Mgr. Jakub Málek, partner – malek@plegal.cz
Veronika Pečová, legal assistant – pecova@plegal.cz
05. 03. 2021
[1] Act No. 304/2013 Coll., on public registers of legal and natural persons and on the registration of trust funds, as amended.
[2] Act No. 253/2008 Coll., on Certain Measures against the Legalization of Proceeds from Crime and the Financing of Terrorism, as amended.