New obligations under the Act on the Registration of Beneficial Owners

The new Act on the Registration of Beneficial Owners will enter into force on 1 June 2021. Under this law, legal entities will be affected by new obligations. The new definition of beneficial owners includes not only people who influence decisions, but also people who benefit from the activities of a legal entity. It will also be necessary to record the structure of relationships. Failure to comply with the new obligations may result in fines. The database will also be made available to the public.

The Act brings major changes:

• in the definition of the person of the beneficial owner and in the recorded data;
• in the method of registration;
• and in new sanctions for violation.

Recorded data

The new law changes the concept of people registered as beneficial owners. A beneficial owner is a person who is the ultimate beneficiary or a person with an ultimate influence, as long as the identification limit of 25% on the distributed benefit and 25% on the voting rights remains – either directly or indirectly. The definition of beneficial owner is based on two aspects – the ultimate influence and the ultimate income. With the new law, it will be enough to meet only one of these conditions. The decision on the person of the beneficial owner will therefore be based on fact; thus on who has real influence not on who is registered.

A legal entity can have several beneficial owners, the decision will depend on the share of decision-making. The explanatory memorandum states that the beneficial owner may be a partner controlling 40% of the company and at the same time the three remaining partners together who jointly control 60%.

The person of beneficial ownership can be assessed in two ways:

• it is a natural person whose will and decision is reflected in the actions of legal entities;
• or it is a natural person who ultimately benefits from being a legal person.

This position may be based on several different legal grounds.

The new law also requires the registration of the structure of relationships. The structure of the relationships can be understood as any relationships through which the actual beneficiary can directly or indirectly benefit or directly or indirectly exercise influence. Thus, for example, the appearance of one legal entity in the organisational structure of another legal entity should be recorded within the structure of relationships, as well as relationships based on simple trust or following informal instructions (as non-legal facts). It will be possible to prove these facts not only through extracts from public registers, decisions of legal entities, but also by affidavits of persons.

Entry in the register, automatic transcription of data from the Commercial Register

In cases where the beneficial owner is already apparent from the entry in the Commercial Register, the data may be automatically transcribed without obligation for the registrant to submit a separate application. For example, in the case of a limited company, a natural person will automatically be registered as a partner with a share of more than 25% or the beneficial owner of a legal person with a share of more than 25%. In the case of a joint-stock company, the person registered as the sole shareholder will be automatically registered. If another person who meets the definition of beneficial owner appears, the obligation to register this person continues. This regulation does not affect partnership; they will have to continue to submit proposals for registration in the register of beneficial owners. Entries will be made by the courts in the registration proceedings, in some cases also by notaries.

New sanctions for violation

In the absence of proper registration, the company may be subject to several sanctions, both financially in the form of fines or operationally and organisationally in the form of annulment of corporate decisions or suspension of the exercise of shareholders' voting rights. If the beneficial owner is not registered, they may not exercise the right to vote or decide as a sole shareholder in the decision-making of the highest body of the company; the invalidity of the decision of the sole shareholder may be invoked. It is prohibited to pay a share of the profits to this person or to any legal entity that does not have beneficial ownership in the register of beneficial owners. Companies face fines of up to CZK500,000. The correctness of the entry in the register of beneficial owners is supervised not only by the registering person, but also by the liable person according to the AML Act, who risks a fine of up to CZK1 million for non-compliance with this obligation.

The new law was adopted due to the obligation to implement European legislation and is it in accordance with it.