New regulation of beneficial ownership

The Ministry of Justice has recently prepared a bill on the register of beneficial owners, which should replace and enhance the transparency of the existing beneficial ownership regulation contained in the Act on Public Registers and the AML Act (the Act on Some Measures against Legalisation of Proceeds from Criminal Activity and Financing Terrorism). The bill is proposed to be effective from the end of 2020.

The first change introduced by the new act is a more detailed and clearer definition of beneficial owner. The existing legal regulation defines a beneficial owner based on a system of rebuttable presumptions while at the same time prescribing a material condition, i.e. the exercise of direct or indirect controlling influence in a particular legal entity. The new legal regulation defines the beneficial owner as every individual who is the ultimate recipient or exercises ultimate influence.  Contrary to current legislation, it will be possible to determine several individuals as beneficial owners meeting the criteria set by law and not necessarily acting in concert. The bill also regulates the beneficial owner determination where more complex ownership structures are concerned. It also lists legal entities that do not have beneficial owners. In contrast with the existing rules, a beneficial owner will no longer have to be determined only for persons recorded in the public register under the Public Register Act.

Moreover, the bill introduces a procedure to be followed when the beneficial owner cannot be determined. In such cases, every person in top management of the entity at issue will be regarded the beneficial owner; as a matter of priority, top managers directly subordinate to the statutory body when exercising their offices. Where such persons are non-existent, the statutory body members will be the entity’s beneficial owners. However, this procedure will only be applied after the legal entity has made every effort to ascertain the beneficial owner but did not manage to do so pursuant to law, or where ultimate influence is exercised by a legal entity that does not have a beneficial owner. The entity in question will have to document the steps it took to determine its beneficial owner as well as document the structure of relations if such a structure exists, to avoid the excessive use of this provision.

Currently, the question frequently arises whether the beneficial owner of a company owned by another company is a member of its statutory body or a member of the statutory body of its parent company. The new law removes these discrepancies: the beneficial owner will be a person in the top management of the legal entity that is the ultimate recipient or exercises ultimate influence. To record beneficial owners in the register, courts will carry out proceedings similar to registration proceedings, only examining whether the recorded information is supported with appropriate documentation. The recording of information in the register via notaries will be simpler: notaries will not have to prepare supporting notarial deeds. It can therefore be expected that the majority of acts will be done by notaries, as this will be faster and cheaper. Owing to the new law, in simple cases (especially concerning smaller companies with only one member), the automatic recording of information about the beneficial owner should be the standard, resulting in a smaller administrative burden. Another simplification will be the linking of the form to record the beneficial owner with the form used to record a new company in the Commercial Register.

The law introduces a number of welcome novelties that should facilitate the record-keeping, determination and registration of beneficial owners. At the same time, however, it imposes a number of specific duties on legal entities when determining beneficial owners, especially regarding documentation accompanying motions to record beneficial owners in the register, and also regulates the enforcement of such duties. Parts of the records will also be available to the public, which should increase transparency and the level of monitoring over the fulfilment of statutory obligations.

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