Summary of obligations and sanctions related to the ultimate beneficial owner registration

SUMMARY OF OBLIGATIONS AND SANCTIONS RELATED TO THE ULTIMATE BENEFICIAL OWNER REGISTRATION

On 1^st June 2021, the new Act No. 37/2021 Coll., on Ultimate Beneficial Owner Registry (“Act”) will become effective in the Czech Republic. As this Act alters the current regulation quite broadly, we have summarized the most important obligations laid down by the said Act for you below.

In this article you will find information on the modified definition of ultimate beneficial owners (who is the UBO within the meaning of the Act), as well as on sanctions for non-compliance (prohibition to provide share on profit, suspension of voting rights or fine up to ca. EUR 19,000 or on the accessibility of the registered information.

WHO IS THE ULTIMATE BENEFICIAL OWNER?

Under the Act, legal entities are obliged to register all natural persons who fall under the Act’s definition of the UBO, i.e. all natural persons who are:

• Final recipients of a substantial part of the total benefit of the company (in contrast to other beneficiaries), which benefit they do not pass onto other persons; the law presumes such position to all who may obtain at least 25 % of the company’s benefit (either generated by its activities or to be provided upon liquidation of the company) or who is entitled to at least 25 % of the profit generated by the company;
• Persons with final influence who can, directly or indirectly, exercise decisive influence, i.e. in business companies the persons who
• can appoint the majority of executives of the company, have over 40 % of voting rights in the company (unless another person has the same or a higher share on voting rights) within the meaning of the Business Companies Act; or
• have a direct or indirect substantial share on voting rights in contrast to other persons, especially if such share exceeds 25 % of voting rights in the company.

Both criteria above also take into account any indirect benefit or influence, whereas the law provides, how such indirect benefit or influence shall be calculated.

Furthermore, the following natural persons may be registered as UBOs, provided that no person may be identified pursuant to the above-mentioned criteria:

• Persons in the top management of the company (persons who secure day-to-day or regular management of the company’s activities and who are concurrently members of the company’s statutory body or persons directly subordinate to them).

Please bear in mind, that the companies will still be obliged to keep records of their UBOs as well as of the reasons for such position under the Act. Companies will also be liable for the accuracy of the records in the registry. This is however already applicable under the current regulation.

SANCTIONS FOR NON-COMPLIANCE

The Act newly introduces severe direct sanctions for non-compliance, both monetary (imposition of fine up to CZK 500,000, i.e. approx. EUR 19,000) and non-monetary (prohibition to provide this UBO with its share on profit, prohibition to exercise his voting rights).

Non-monetary sanctions. Under the new Act, in cases where the company has not registered their UBO in the registry, it will not be allowed to provide such UBO (and/or the companies through which the UBO controls the company) with its share on profit. This applies also in such cases, where there is a number of group holding companies between the respective company and its UBOs. Such profit would be considered as unjust enrichment of the UBO and the payment of the profit would be in violation of the company’s executive’s obligation of due care.

The company will also be prohibited to pay any profit share to legal persons who have not registered their UBOs. The right to the profit share of the respective persons shall expire following the end of the accounting period.

Further, the UBO(s) who is not registered in the registry may not exercise his voting rights in the company (or the voting rights of a legal person through which he controls the company). This mechanism also applies to an indirect UBO (in cases of group holding companies as mentioned hereinabove). The direct mother company would not be able to participate in decision making as the shareholder of the company – such resolution would be challengeable as invalid.

It needs to be pointed out that the above mentioned non-monetary sanctions will be applicable as of the date of the date effectiveness of the Act (1^st June 2021).

In the light of the above, we highly recommend ensuring compliance of the registration with the requirements of the Act without undue delay so that ideally, the registered data correspond materially to the Act as of 1^st June 2021. The fact whether the companies will have their UBOs duly registered will in particular be relevant in relation to the planned general meetings and the ability of relevant shareholders to exercise their voting rights at those general meetings. The companies will further not be entitled to pay shares on profit to those shareholders, who are not registered in the UBOs registry contrary to the Act, as well as to shareholders that have not registered their UBOs.

Monetary sanctions. Furthermore, the Act introduces monetary sanctions which may firstly be imposed once the company fails to remedy the non-compliance within a period provided by the registry court.

Though the monetary sanctions are primarily to be imposed on the legal entities (companies), which fail to comply with the Act, the UBOs themselves may also be subject to this fine, should they fail to provide cooperation necessary for the registration (given that the court has ruled on such non-cooperation).

Sanctions imposed by other Acts. Apart from the direct sanctions imposed by the new Act, the current, indirect sanctions will also remain applicable – namely sanctions under the Public Procurement Act, Insolvency Act, AML Act.  Further, the executives may be held liable for the non-compliance with the new Act, as the failure to register the UBOs may be considered as a violation of the executive’s civil obligation of due care.

WHO WILL HAVE ACCESS TO THE REGISTERED DATA?

Under the new Act, the UBOs Registry shall become public (to a limited extent). The scope of information accessible to different addressees will be as follows:

Broad public. Anyone shall be able to access:

• information on the company’s UBO (their name, country of residence, year and month of birth and their nationality);
• information on the grounds for their position as UBOs and their share on the company (should the share constitute such grounds), the date as of which they are the company’s UBO (and until which they were the UBOs) and potentially other information made available with the UBOs consent and/or made public in the companies registry;
• information on the respective company (ID number, registered office etc.);
• additional information at such company’s request (ownership structure).

Persons with proven interest. The courts may make additional information available to those, who can demonstrate their interest in acquiring additional information with respect to AML crimes prevention (in particular the NGOs - focusing on crimes prevention or investigative journalists) or request this information in relation to a trust fund through which the respective UBO may benefit or exercise influence over a legal person established outside the EU. These entities may namely be provided with access to additional information on the reason for the UBOs position as a UBO, should such position be constituted on other grounds than by their ownership of the company’s share), with the description of the ownership structure, including the information about the companies and natural persons included therein.

Full access. The Act finally provides a list of entities who shall access all data registered in the UBOs registry, which are:

• The UBOs themselves, the persons filing the application for UBOs registration and the respective entity (company), whose UBOs are being registered;
• Public authorities – courts and insolvency administrators, public notaries (for the purposes of registration), law enforcement authorities (for criminal proceedings) and to state prosecutors, the Czech national bank and other state entities;
• Entities obliged under the Czech AML Act.

The only exception to the public access of the UBO’s data is presumed with respect to UBOs who have limited legal capacity (i.e. are under age or who have been limited in their legal actions by court).

We will inform you on the other specifics introduced by the Act in our following articles, namely in relation to registration proceedings, the scope of information registered in the UBOs Registry or on the institute of automatic transcription.

9^th April 2021