Yet another amendment – Who is your ultimate beneficial owner?
Yet another amendment – Who is your ultimate beneficial owner?
We believe that you have not missed the recent amendment to the Act on the Registration of Beneficial Owners, about which we have informed you in one of our previous newsletters. Today, we will focus on the practical side of this amendment to give you an idea of what its adoption may mean for you and your company.
At the outset, it should be said that the amendment came into force on the 1st October this year, but there is no need to worry about it, as the deadline for reflecting all the changes in your registration is set until 1st April 2023. More specifically, this is the deadline for persons who have duly registered their beneficial owners under the previous legislation, or for persons who have not been subject to the obligation to register beneficial owners at all. Other persons should remedy the situation as soon as possible.
From a practical point of view, it is particularly important to reassess whether the beneficial owners you have registered correspond to the new definition introduced by the amendment. As of 1st October, the law no longer refers to beneficial owners formally as ultimate beneficiaries (koncoví příjemci) and persons with final influence (osoby s koncovým vlivem), but rather as individuals who ultimately own or control the corporation. It should be noted here that although both of the above definitions have been formally deleted from the Act, materially the new designation adopts them materially and merely expands them. Thus, there has been no absolute change in the structure of the definition of beneficial owner, as some continuity has been maintained.
It might seem that there is little difference between being an 'ultimate beneficiary' and 'owning a company' or between 'exercising final influence' and 'controlling a company', nevertheless, this difference was significant to the extent that it was necessary to amend the former Czech Act in order to maintain consistency with European law. The original, inaccurate definitions of Czech law where thus brought closer to those contained in European law.
In the context of this new definition, the question arises, what exactly does it mean to own and control a legal person or a legal arrangement? The Act on the Registration of Beneficial Owners answers this question as follows:
A corporation is ultimately owned or controlled by any natural person who, directly or indirectly through another person or legal arrangement
(a) has an interest in the corporation or a voting interest in the corporation of more than 25%,
(b) has a right to a share of more than 25% of the profits, other equity or liquidating balance,
(c) exercises a decisive influence in a corporation or corporations which, individually or jointly, have an interest in the corporation of more than 25 %; or
(d) exercises decisive influence in the corporation by other means.
As a corollary to the above, it should be emphasised that these rules will also apply again in the case of so-called chaining (vertical relationships between companies) and branching (horizontal relationships between companies) of shares, which will come into play precisely in the case of indirect shareholdings in corporations.
The amended wording of the Act on the Registration of Beneficial Owners also naturally subordinates other related provisions to this new definition of terms, e.g. concerning investment funds, persons and arrangements without a beneficial owner, the extension of the group of persons obliged to register the beneficial owner or situations in which the beneficial owner cannot be determined according to the general rules.
Finally, it is worth mentioning that the system of automatic transcription of data from the public register has been maintained, even in cases where a presumption of a 40% or greater interest in related corporations applies, whereby a person with such interest is automatically presumed to be the beneficial owner unless someone has an equal or greater interest. Thus, if you conclude that your beneficial owner is a person ascertainable from the public register and you are not subject to the exception for persons whom automatic registration does not occur because of prior registration through a court or a notary public, any change in registration resulting from this amendment should also be automatic. However, it is advisable to check whether the current entry in the register corresponds to the actual situation under the new legislation.
If you have any further questions on this issue, or if you would welcome our assistance in this regard, please do not hesitate to contact us.