Home

Intern

Contact

cz|de|en

AROUND 50 COUNTRIES – OVER 5,800 COLLEAGUES – 1 FIRM |

Worldwide

The Rödl & Partner website uses technical cookies and cookieless tracking technology to keep anonymous statistics on web traffic. This helps us improve our website and the user experience. You have the option to refuse the use of this technology for statistical purposes. For more, please refer to the information available HERE.

New Law on Registration of Beneficial Owners

The new Act 37/2021 Sb., On Registration of Beneficial Owners that was published in the Collection of Laws on 3 February substantially changes the existing statutory regulation of the registration of beneficial owners of juridical entities and the associated duties effective from 1 June 2021.

The new Beneficial Owners Registration Act (BORA) transposes into the national law of the Czech Republic, after a long delay, the so-called Fifth Anti-Money Laundering Directive (EU) of 30 May 2018, which should have been implemented across all EU Member States by 10 January 2020. It introduces many fundamental changes and serious repercussions for business corporations that fail to keep record of their beneficial owners and that fail to register their beneficial owners accurately and in time.

Statutory duties of business corporations

Concerning the general contents of the essential duties of juridical entities with respect to their beneficial owners, the changes introduced by the new law are rather perfunctory.

Business corporations must continue to obtain and record comprehensive, accurate and current information about their beneficial owners to the extent laid down in section 13(a) to 13(g) BORA. The extent of the information on record is somewhat broader than under the previous law. In addition, business corporations must amend their record to assure its consistency within 6 months from the effective date of the new law.

At the same time, the new law is more comprehensive and complex when it comes to defining the beneficial owner as any individual who is the ultimate beneficiary or the person exercising ultimate control over a business corporation, as well as when it comes to laying down the criteria of beneficial ownership.

The register of beneficial owners is administered by the Ministry of Justice and kept by registry courts. In addition to courts, business corporations will now be able to make changes to their record in the beneficial owners’ register also at a civil notary’s office. The new law also introduces some minor changes, such as an automated registration of individuals, whose beneficial ownership may be derived from a record in another public register, which is the case of individuals who are registered as owners of limited liability companies, for example.

Public access to the beneficial owners’ Register

One of the fundamental changes of the new law is that the information about beneficial owners will be available in public domain. Under the law, the Ministry of Justice as the administrator of the public register will permit anyone to obtain a copy of a part of the entry in the register to the extent of the information about the beneficial owner’s name, country of residence, year and month of birth, and nationality, as well as the information about the nature and the extent of the beneficial interest held and some other selected data.

Discrepancies and their consequences

But the real breakthrough of the new law is the new regulation of possible discrepancies in the beneficial owners’ register and the legal consequences of such discrepancies. If a public authority, or another person that is bound to act under the law (so-called obliged entity), discovers a discrepancy in a beneficial owner’s register record, they must report their findings to the competent court, which will initiate special proceedings to resolve the matter.

If the court finds that the information available in the register are not complete and accurate, the court may take action to erase the incorrect information from the register and record the accurate information insofar as they become available to the court in the course of the proceedings. The lack of information about beneficial ownership in the register will also be treated as a discrepancy for the purposes of such proceedings.

The possible repercussions of discrepancies in the information recorded in the register are not limited to a fine for an administrative infraction. The new law introduces also more fundamental legal consequences:

If the beneficial owner of a business corporation is not duly recorded in a beneficial owner’s register, the business corporation may not distribute a share in profit (or another portion of equity) to such beneficial owner or to the juridical entity in which such individual holds a beneficial interest
Likewise, a business corporation may not distribute a share in profit (or another portion of equity) to another juridical entity that does not have a beneficial owner recorded in the register
The right to a distribution of a share in profit or another portion of equity that failed to be distributed for reasons set forth above before the end of the fiscal period in which the distribution was approved, expires at end of such fiscal period
A beneficial owner who is not recorded in the beneficial owners‘ register may not exercise his or her voting rights in the supreme body of such business corporation and may not adopt decisions as the business corporation’s sole owner; this rule applies also to any juridical entity in which such beneficial owner holds a beneficial interest

Administrative infractions

Unlike the previous law, the new Beneficial Owners Registration Act also redefines the violation of the duties laid down in law as an administrative infraction (delict) and introduces fines for such infractions.

A business corporation that has the duty to enter and maintain a record in the register commits the administrative infraction if it fails to enter any records in the beneficial owner’s register within a reasonable grace period at the instruction of court or if fails to record new information in the register within 15 days from the conclusive and effective date of a court’s ruling in discrepancy proceedings so long as the court erased the incorrect data without substitution.

The beneficial owner, the beneficial recipient, the person exercising the ultimate control and the person through which the beneficial recipient may obtain benefits or through which the person exercising the ultimate control may exercise its control commit the administrative infraction if they fail to cooperate with the business corporation that has the duty to enter and maintain record in the beneficial owners’ register so long as the violation has been affirmed by court.

A fine of up to CZK 500,000 may be imposed for the foregoing administrative infractions. The fine may also be charged repeatedly.

Our recommendation

In view of the recent changes introduced by the new Beneficial Ownership Registration Act effective from 1 June 2021, especially the potential repercussions of a failure to record the requisite information and to correct discrepancies, we would recommend checking your current record in the beneficial ownership register and its compliance with the requirements laid down in the new law in order to avoid rather substantial legal consequences arising under the new law after 1 June.

Contact

Contact Person Picture

JUDr. Pavel Koukal

Attorney at Law (Czechia)

Associate Partner

+420 236 163 710

Send inquiry