New Czech Act on Beneficial Owners Register
Czech Act No. 37/2021 Coll., on Beneficial Owners Register (the “New UBO Act”) was definitively adopted on 22 January 2021. By virtue of this new legislation, the rules for identifying and registering the ultimate beneficial owners (UBOs) of a company will change significantly. The New UBO Act not only changes the definition of ultimate beneficial owners – for both “real” UBOs and “substitute” UBOs (if the real UBO doesn’t exist or cannot be ascertained) – but also, more importantly, it introduces new administrative and civil sanctions for non-compliance with the registration obligation. Moreover, under the UBO ACT important data (including the UBO’s identity) will become public.
The UBO Act will enter into effect on 1 June 2021.
Why is it important to review your UBO registration, regardless of its validity at the time the UBO Act enters into force?
1. New definition for “real” UBOs:
From now on, every natural person who can obtain, either directly or indirectly, at least a 25 percent share of earnings, or who has a significant share of the voting rights or controls or otherwise exercises a decisive influence on the company will have to be registered as a UBO. Currently, typically only the majority shareholder is registered as a UBO.
2. New definition for “substitute” UBOs
If no real UBO exists or can be ascertained, all statutory body members of any legal person listed at the top of the ownership structure of the company are to be registered as UBOs. Currently, only the statutory body members of the company should be registered as the “substitute” UBOs.
The new act introduces fines that can be imposed on both the company (for noncompliance with the registration obligation, following a court ruling that the register entry is inaccurate), and on the UBOs themselves (if they fail to inform the company of their status as a UBO or fail to provide necessary assistance with registration). There are no administrative fines under the current legislation.
4. Civil sanctions
If a UBO is not registered, he/she cannot, directly or indirectly, exercise any of the most important shareholder rights – namely, voting rights and dividend rights. This might constitute a variety of problems for both the UBOs (who would not be allowed to participate at a GM or appoint statutory body members), as well as for the statutory body members (who would be subject to potential liability for damage for acting without due care if they allowed dividend payouts or participation at a GM of unregistered UBOs). No such sanctions exist under the current legislation.
The New UBO Act changes the definition of a UBO and introduces such significant consequences for noncompliance as stripping unregistered UBOs of their right to exercise basic shareholder rights. For these reasons, it is crucial to ensure that the companies in which you have a direct or indirect ownership interest or control have their UBO records in order. Indeed, while the New UBO Act gives Czech companies an additional six months (until the end of November 2021) to update their current UBO registration, no transitional period is expressly defined for the abovementioned civil sanctions.
We at PRK PARTNERS are ready to help you with interpreting the finer details of this new piece of legislation.