How to register ultimate beneficial owners into the registry?

HOW TO REGISTER ULTIMATE BENEFICIAL OWNERS INTO THE REGISTRY?

In our previous article, we informed you about the new Act No. 37/2021 Coll., on Ultimate Beneficial Owner Registry (“Act”), which will become effective on 1^st June 2021. With this article we follow up on the topic of ultimate beneficial owners (“UBOs”)with regard to the registration itself, the total scope of recorded information, as well as in terms of the possibility to correct the incorrectly entered or outdated data. Firstly, however, let us  remind you, who is the UBO within the meaning of the Act.

WHO IS THE ULTIMATE BENEFICIAL OWNER?

As we have informed you in our previous article , legal entities will be 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).

REGISTRATION IN THE UBOs REGISTRY

The registration itself can be done in three different ways, namely with the court, through a notary or through the so called automatic transcription.

Registration with the court. Similarly to the current regulation, a standardized electronic forms will be used for registration of the UBOs through courts under the new Act as well. Such form is to be filed with the general court of the company or trustee, whereas documents proving the veracity of the entered data need to be attached to such form (for example: articles of incorporation, lists of shareholders or possibly, an affidavit of the company on the veracity of the data). If these documents are not in the Czech language, a simple translation must be provided, unless the court rules otherwise. With respect to foreign persons, it will also be necessary to submit various extracts from foreign public registries for the purpose of their identification.

The application for registration (i.e. the above-mentioned form) itself shall be submitted primarily by the registering person, whose UBO is to be registered. However, if the registering person fails to register its UBO within 15 days as of the date the obligation occurred (once the Act becomes effective or following the establishment of a new company), the application may be submitted by any person who has legal interest in such registration. It should be borne in mind that this third party is also obliged to attach all documents required by the Act.

If the registering person files the application itself, the court shall make an entry in the register without any further validation procedure. The competent court shall only notify the registering person of the successful registration and provide it with the first extract from the registry. If the application is filed by a third party with legal interest (as described above), the court will issue a resolution before entering the data in the registry, which will be delivered to the respective company prior to the actual registration, whereas such company may file an appeal against such resolution on registration. Should the resolution on registration not be challenged by the company, the court will enter the data within five working days.

Registration through a notary. The second possible way of how to register the UBOs is through a notary. The explanatory memorandum to the Act shows the tendency of legislators to entrust the administration of UBOs registration primarily to the notaries. The above-mentioned requirements for the application remain the same, however, all steps are performed by the notary, who will use their remote access to the registry and will be able to enter the data directly. There are several advantages to this procedure – first of all, we should emphasize the speed of whole process and also a certain guarantee of the correctness of the supporting documents. We assume that this direct cooperation will also lead to a reduction in the number of rejected applications.

Automatic transcription. Finally, the third way how to register the UBOs will be through the so-called automatic transcript. Registering persons with simple ownership structures (i.e. structures which can be read from the Commercial Register) may activate the automatic transcript of data from the Commercial Register to the UBO Registry by letting the 15-day period for registration pass. The intention of introducing the new institute is to generally reduce the currently high administrative burden of courts.

The second significant advantage of automatic transcription is the automatic updating of the entered data. If the registering person has already used the automatic transcription for the initial registration, the UBO Registry will also automatically reflect any future change of data registered in the Commercial Register.

Nevertheless, it needs to be stated that if the registering person has already used the court or the notary for its first UBOs registration, it is necessary to additionally activate the automatic transcription.

Moreover, when activating the automatic transcription, it is necessary to bear in mind that the natural persons registered in the Commercial Register (who are being automatically transcribed as UBOs) do not always fulfill the definition of the UBO within the meaning of the Act. Therefore, prudence and regular checks of the transcribed data are required.

Extended deadline for reflecting data changes. Although our attention is now mainly focused on the new Act and on the obligations and sanctions it introduces, it is worth mentioning that the obligation to register UBOs has been introduced as of 1^st January 2018. Specifically, it was (and until 31^st May 2021still is) laid down by the Act on Public Registries, but without the threat of direct sanctions for non-compliance. The new Act will however favor those companies, which have properly registered their UBOs in accordance with the Act on Public Registries and registered their UBOs within the deadlines set therein. These companies will be provided with extended period for adjusting the entered data so that they comply with the new requirements of the Act, namely until 1^st December 2021. The reason is that the Act provides modified criteria and procedures for determining the UBOs in some respects as opposed to the Act on Public Registries.

THE SCOPE OF RECORDED INFORMATION

Regarding the total scope of information that must be entered in the UBOs Registry (although not all of them will be accessible to the broad public – you can read more thereon in our previous article), we offer the following list:

• full name of the UBO, date of birth and birth number, place of residence (exact address) and nationality (whereas only the country of residence, month and year of birth and nationality will be publicly available);
• information on the reason establishing the position of the UBO and information on the size of the (in)direct share / influence;
• description of the ownership structure of the company;
• the date when the person became the UBO of the company (or the date until which the person was the UBO of the company).

IRREGULARITY PROCEEDINGS

The irregularity proceedings which will newly be introduced by the Act, will allow the courts to correct the incorrectly entered data in the records, and thus keep the content of the records up to date.

The irregularity proceedings may only be initiated on the basis of a notification from entities designated by the Act, namely by public authorities (i.e. tax authorities, police etc.) and the so called “obliged persons” under the AML Act. Prior to initiating the proceedings, however, the courts shall notify the registering person on the notified irregularity and provide it with a rectification period. Should the registering person fail to remedy the defects, the court may issue a resolution on such irregularity, which may lead to an imposition of a fine by the administrative authority, as described in more detail in our previous article.

29^rd April 2021