Act on Registration of Beneficial Owners: six month to update data

The new Act on the Registration of Beneficial Owners has been published in the Collection of Laws and will enter into effect on 1 June 2021. All business corporations must update the data recorded in the beneficial owners' register within six months of its effective date. Companies that have not yet registered any information about their beneficial owners must do so without undue delay after the law enters into effect. The act introduces strict penalties for failures to comply with the new obligations.

The new law contains a comprehensive regulation of beneficial owners: it revises the definition of the beneficial owner; stipulates strict sanctions for the breach of the obligation to register; lays down more detailed rules for the registration; and makes the register partly accessible to the public.

According to the law, the beneficial owner of a business corporation is each individual/natural person who is the ultimate beneficiary or a person with ultimate influence in a business corporation. If such a person cannot be identified for a corporation, then every person in its top management shall be deemed the beneficial owner.

Under the act, it will now be possible to impose a fine of up to CZK 500,000 on corporations that fail to ensure the timely entry of data in the register of beneficial owners, and on persons who fail to provide the registering person with the necessary cooperation in determining and registering the beneficial owner.

There are also significant private-law restrictions affecting non-registered beneficial owners: they cannot vote at the corporation’s general meeting or adopt decisions as its sole member. Similarly, a legal entity or trustee of a trust with no registered beneficial owner will not be able to vote or adopt decisions. A resolution of a general meeting or a decision of a sole member adopted in breach of this legislation shall be invalid.

The failure to register a beneficial owner will also have a very fundamental effect on the payment of shares in profit, other own resources or a liquidation balance (‘share in benefit’). A corporation without a registered beneficial owner may not pay a share in benefit to that owner, or to a legal entity or trust whose beneficial owner they also are. Furthermore, a corporation may not pay a share in benefit to an entity that itself does not have a registered beneficial owner. If the failure to register is not corrected on time and the share is not paid by the end of the accounting period in which its payment was decided on, the right to the payment shall expire. A statutory body that pays the share in benefit in breach of these rules will be in breach of their fiduciary duty and not acting with due managerial care.

It is therefore recommendable that companies approach the registration of beneficial owners conscientiously and regularly update the registered data with any changes.

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