Registration of beneficial owners
As of 1st June 2021, Act No. 37/2021 Coll., on registration of beneficial owners (RBO Act) takes effect. Simultaneously, the Amendment to Act No. 253/2008 Coll., on certain measures against legalization of proceeds from criminal activity and financing terrorism (AML Act), also takes effect.
We would like to draw your attention to new obligations connected with the implementation of penalties for contravening registration obligations. Members of statutory bodies, beneficial owners, but also mandatory persons pursuant to the AML Act therefore have a common interest in verifying current information in records and their possible correction.
- Who is a beneficial owner?
A beneficial owner is any individual who is the ultimate beneficiary or person with an ultimate influence (Section 2 RBO Act). Searching for the beneficial owner thus goes along two lines. The ultimate beneficiary is the person who can have, directly or indirectly through another person or legal arrangement, a substantial part of the total benefit formed during activity or by the liquidation of a corporation, he/she thus gains a share in the profits, in other own resources or in the liquidation balance.
A person with ultimate control is a person who can, without instructions from another, directly or indirectly exercise a decisive influence in a corporation or in the administration of the legal arrangement thereof.
- Automatic copy
The first, if last item of good news is the information on the possibility of a so-called automatic copy of beneficial owners into the register of beneficial owners. In a simplified manner of speaking, this means that the an individual entered into the commercial register is entered automatically into the register of beneficial owners as the beneficial owner of a limited liability company as a partner with a stake of more than 25 % and the sole shareholder in the case of a joint-stock company (for closer detail, see Section 37 and 38 RBO Act). The automatic copy is applied only in companies which will not, as at 31. 5, have any beneficial owner entered in the register of beneficial owners pursuant to the regulations until the present.
- Registration term
Companies which registered their beneficial owners in the past (within the terms pursuant to the transitional RBO Act provisions) have until the determined term of 1. 6. 2021 (they thus have a deadline of 6 months as of the coming into effect of the RBO Act) to change their register pursuant to the new requirements of the RBO Act.
Companies which had not in the past (within the terms pursuant to the transitional RBO Act provisions) registered any beneficial owner pursuant to the regulations until the present (or who may have done so, although not in time in keeping with the transitional provisions) have to fulfil the obligation to register the real beneficial owner pursuant to the new requirements of the RBO Act without unnecessary delay after the coming into effect of the RBO Act, thus approximately by 15 June 2021. It is necessary especially for these persons to register the beneficial owner as soon as possible so as to avoid limitation of partner rights especially in connection with the prepared annual general meeting that will approve the financial statement for 2020, which would take place after 15 June 2021 and later.
- Limitation of a partner’s basic rights
The RBO Act has implemented an entirely new penalty mechanism in the form of limiting a partner’s basic rights. The person of the beneficial owner who is not entered on the record cannot exercise voting rights and has no right to a share in the company profits. The company must neither pay this person a share in the profit nor any other refund (e.g. returning a fee provided outside of the share capital). Problems can arise from these penalties, both for unregistered real beneficial owners and for the members of the company statutory body, who could potentially be liable for the damage caused by contravention of the care due of a prudent businessperson when ascertaining the real beneficial owner.
In contrast to the arrangement until now, which does not impose penalties for non-fulfilment of record-keeping obligations, the new arrangement brings, besides limitation of basic partner rights, significant penalty mechanisms in the form of fines.
The fine for a contravention by a company can reach an amount of CZK 500 thousand and can be imposed
for contravention of the obligation to enter the beneficial owner into the records, not even after a reasonable deadline set by a court;
for not arranging entry of new data after a court has ruled that there are discrepancies in the records.
The fine for a contravention by a beneficial owner can reach an amount of up to CZK 500 thousand and can be imposed
if they do not inform the company that they have become the real beneficial owner or do not provide the necessary cooperation for the needs of registering the real beneficial owner on the record.
- New obligations of mandatory persons as defined by the AML
The AML Act Amendment implements an obligation on a mandatory person to draw attention to discrepancies if he/she is of the impression that the data in the records do not correspond with the real state. Auditors, tax advisers and accountants are among these persons. The obliged entity has to inform clients about the ascertained discrepancy, and if the discrepancy is not removed or refuted by the client/s, the obliged entity has to notify a court about the discrepancy. If the obliged entity does not fulfil this obligation they face a fine of up to CZK 1,000,000.
In view of the above-mentioned facts, we recommend that you verify the correctness of data stated in the record of beneficial owners, and in the event of any questions, contact your lawyer with the aim of adjusting the data you have entered into accordance with the RBO Act.