Legislative changes: how they will affect you, and what to watch out for?
Essentially, the new legislation introduces several changes, such as redefining the term “beneficial owner”, new methods of entering information in the register of beneficial owners (the “register”), through a notary, and publicity of registered data. Above all, the new legislation introduces severe penalties.
And not only do these new penalties impact entities financially, they may also present practical difficulties in terms of their functioning as corporations and the exercise of their rights, as well as the exercise of the rights of their shareholders (including the liability of statutory body of the corporation for any damage caused if it acts in contravention of the above regulations, e.g. if the board of directors pays a share of the profit to a shareholder who has not entered its beneficial owner in the register although is obliged to do so).
Who now qualifies as a beneficial owner?
The new regulation sets out detailed rules for determining a beneficial owner of legal entities. However, in principle, a beneficial owner shall be deemed a natural person who
In practice, often one person meets both criteria (e.g. the shareholder exercises its influence in the company and simultaneously acquires the right to profit distribution). However, in many cases this may not be so (e.g. shareholders of preference shares have the right to a share of the profits, but their voting rights at the company general meeting are limited). In such cases, registration of both persons – both the ultimate beneficiary and the person with an ultimate influence – will be required.
Legal entities, including those with beneficial owners already registered under existing legal regulations, must amend such a registration entry in line with the new legislation. In addition, if necessary, they are obligated to amend the entry and provide relevant documents as evidence of having done so.
We can only recommend that this “revision” process be carried out as soon as possible, not least because of possible penalties, to ensure that legal entities can enter or amend the record of the beneficial owner in the register within the specified deadlines.
What sanctions can be imposed?
The law specifies two categories of sanctions for breaching the obligation to enter correct information in the register of beneficial owners, namely:
Entry in the register of beneficial owners via a notary?
The aim of the new legislation is, if possible, to transfer to notaries most of the administration concerning an entry in the register. This is also shown by the fact that the fee for registration by a notary should be lower than the fee for registration with the registration court. We will see how the practice of notarial registration will develop.
Unfortunately, at the moment, we do not know what the register records and electronic extracts under the new act will look like and how they can be obtained. We will need to wait a little bit longer for such information, too.
Is there a deadline for entering the beneficial owner in the register?
Complying with the established deadlines will be of crucial importance.
For all corporations fulfilling the obligation to enter the beneficial owner in the current register
a six-month period shall apply. These corporations have until 30 November 2021 to review the accuracy of these entries, or to add to or correct them.
Corporations that have not yet fulfilled the obligation to enter their beneficial owner in the current register are not granted this additional period and are obligated to do so without undue delay after 1 June 2021.
Who will have access to the information regarding beneficial owner?
The biggest change under the act is that anyone with access to the internet can now obtain information about the beneficial owner. Therefore, anyone can check who really owns or controls a company entered in the commercial register. Publicly available data will also be crucial for compliance with the existing rules. An inspection of whether the beneficial owner is recorded beside a particular shareholder should therefore pose no problems. Corporations must therefore establish relevant control mechanisms so that they comply with the regulations. In companies with a lower number of shareholders, such an arrangement and inspection should not pose any problems. On the other hand, in joint-stock companies with a higher number of shareholders, inspection of a register entry showing a beneficial owner name beside individual shareholders, e.g. in payment of a profit share through a bank or in being allowed to vote at a large general meeting, could in particular instances cause logistical problems. All we can do is wait for practice (or technology) to resolve this.
Concerning the sanctions and potential liability, it is expected, however, that the companies, in particular their statutory bodies, will carefully monitor and adhere to such rules.
20th September 2021
20th September 2021