Author: Mgr. Iva Čípová, 25. 03. 2021
On 3 February 2021 the long-awaited Act No. 37/2021 Coll., on the Register of Beneficial Owners was published in the Collection of Laws. The main objective of this Act is to transpose the so-called Fifth AML Directive (the anti-money laundering directive) into the Czech legal system and to comprehensively define the concept of beneficial owner. The Register of Beneficial Owners Act becomes effective on 1 June 2021. It is also worth mentioning that the Czech transposition of the Fifth AML Directive is the strictest of all EU Member States.
As the concept of beneficial owner has not been precisely defined and the current definition did not reflect reality, the Act provides a more accurate definition of this concept. Until now, the concept of beneficial owner was understood as “an individual, who has the factual or legal possibility to exercise, directly or indirectly, decisive influence in a legal entity, trust or other legal arrangement without legal personality”.
The Act on the Register of Beneficial Owners Act states that the beneficial owner is “every natural person who is an ultimate beneficiary or person with ultimate influence”. The ultimate beneficiary of a legal entity is “every individual who can, directly or indirectly through another natural person or legal arrangement, receive a significant part of the aggregate benefit generated by the operation or liquidation of a legal person or generated by the administration or termination of a legal arrangement and who does not further hand over the benefit”. A „person with ultimate influence” is a person who can, without the instruction of another person exercise directly or indirectly decisive influence in a legal person or upon the administration of a legal arrangement”..
Therefore, the beneficial owner must be in any case an individual. If a company has a complex ownership structure, the beneficial owner must be traced at the end of the structure so that it is an individual. The beneficial owner will be identified on the basis of the actual situation and not only on the basis of the amount of shares in the company. The identification of the beneficial owner will also depend on the memorandum of association/articles of association, the text of contracts related to the operation of a company (e.g. shareholders’ agreements, contract of mandates, silent partnership contracts) as well as the concerted practices of the shareholders.
A good example is a company with two shareholders, one of whom has a share of 90 % and the other a 10 % share. If the minority shareholder has a “veto right” on all decisions in the company, both shareholders will be considered beneficial owners under the Act. Therefore, both shall be entered in the Register of Beneficial Owners. Under the current legislation, only the majority shareholder is considered the beneficial owner. Thus, the identification of the beneficial owner under the law is not so clear-cut and in any case is it necessary to assess the company as a whole.
In most cases every legal entity has a beneficial owner, although there are legal exceptions. Legal entities without any beneficial owner are e.g. the state, public research institutions, political parties and association of property owners.
The authorized representative of a legal entity is obliged to ensure that the beneficial owner is entered into the Register of Beneficial Owners without undue delay after the occurrence of a decisive fact, i.e. within a few days after the change in the company. It will be possible to make the registration of beneficial owners by a court, a notary and in some cases also by an automatic transcript from the public register.
In case of the court´s registration of a beneficial owner it will be necessary to fill in a form and pay a court fee of CZK 4000. In case of registration by a notary, it is sufficient to submit an application for a registration of the beneficial owner. The fee has not been specified yet but it is expected that it will be significantly lower than the court fee.
It is important to note that neither the court nor the notary is obliged to examine veracity and factual accuracy of the information provided. They both just certify that the alleged facts are apparent from submitted documents. Therefore, the relevant legal entity is responsible for the accuracy of the data entered into the Register of Beneficial Owners.
An automatic transcript will be made in cases where a beneficial owner is apparent from the public registers. In practice, a shareholder of a limited liability company with a share of 25 % or more will be automatically registered as the beneficial owner as well as a sole shareholder of a joint stock company. Each authorized representative is obliged to double-check the automatic transcription and correct it if needed (incorrect data may be transcribed or the actual beneficial owner may differ from the one who is entered in the public register).
The Register of Beneficial Owners operated by the Ministry of Justice is currently not publicly accessible and not searchable. However, this will change as of 1 June 2021 as the Register will be publicly accessible and it will be possible to obtain an entry about a legal entity. The entry will contain following information: the name, surname, address of residence, date of birth, citizenship of the beneficial owner, the nature of the beneficial owner´s status, the size of his/her share (in case that the share is the reason for being identified as a beneficial owner) and the date on which he/she became the beneficial owner. It will be possible to search in the Register by legal entities (not by sole proprietorship as we are used to from the Commercial Register).
Courts, insolvency administrators, administrative bodies etc. will have full and unrestricted access to the Register of Beneficial Owners and the right to make complete entry from the Register.
The explanatory report states that the objective of the Act is transparency, the fight against money laundering and financing of terrorism, the reduction of administration and improvement of clarity and systematic character of the legislation.
The current legislation states the obligation to register a beneficial owner in the Register of Beneficial Owners, but does not specify any sanctions for not doing so. There is a significant change in this area that will affect every legal entity – not only fines will be introduced but also so-called private law sanctions which may fundamentally affect company´s operations. We will describe these sanctions in our next article. We will also inform you about the deadline within which the beneficial owner must be registered.
Does the registration of beneficial owner seems too complicated for you? Do not hesitate to contact our law office MACEK.LEGAL. We will be happy to help you identify the beneficial owner and assist you with the registration of the beneficial owner.
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