The Czech Commercial Register collects and records information on a broad range of incorporated entities in the Czech Republic, including the most common forms of companies that carry on businesses. Much of this information is publicly available via a free to use website.
At present, the public can use the Commercial Register to identify the direct shareholders of a Czech limited liability company, as well as the direct shareholder of a Czech solely-owned joint stock company. From January 1, 2018, an amendment to the Czech Public Registers Act (the “Act”) will require the ultimate beneficial owners (UBOs) of Czech companies to be identified to the Commercial Register.
What’s a UBO?
UBOs are defined in terms of “influence,” which is really just an application of well-known concepts of control. Passionate corporate lawyers may wish to study the next paragraph in detail, but mere mortals are free to skip it.
The UBO of a company is a natural person who, legally or in fact, is capable of exercising decisive influence over a Czech legal entity. A rebuttable presumption provides that decisive influence applies where a person: (a) individually or acting in concert with others exercises more than 25% of the voting rights in the legal entity, or whose stake in such legal entity’s share capital exceeds 25%; (b) individually or acting in concert with others controls a legal person under point (a) above; (c) has the right to receive at least 25% of the legal entity’s profits; or (d) if there is no UBO (for instance, in the case of listed companies) or if the UBO cannot be determined under points (a) to (c) above, is a member of the legal entity’s Board of Directors (or a representative of another legal entity that is a member of the first legal entity’s Board of Directors), or is in a position similar to that of a member of the Board of Directors.
So we know what a UBO is under Czech law, but how can we demonstrate that a particular person is the UBO of a particular Czech company? The question becomes trickier the longer the chain of ownership and the more exotic the jurisdiction of the UBO. Relief is at hand. Official materials accompanying the amendment to the Act state that an affidavit will suffice. There is no guidance, however, on the form that this should take or whether the affidavit should be issued by the UBO or the Czech company whose ultimate beneficial ownership is at issue.
When Should I Start To Worry About This?
As stated above, the amendment to the Act comes into force on January 1, 2018. Thankfully, immediate compliance is not required. The Commercial Register need not be notified of the UBOs of Czech companies until December 31, 2018. As a sweetener — if one were needed — the Commercial Register will not charge its usual fees for registering information on UBOs.
Also contrary to the usual rules, no consent is required from a UBO as to his or her entry into the Commercial Register’s database of ultimate beneficial owners.
Starting on January 1, 2019, notifying the Commercial Register of UBOs without undue delay will be required after any change. “Undue delay” is a vague term that, according to common practice, could mean anything from several days to several weeks.
So Who Gets to See This?
Information about UBOs will not be accessible to the public via the Internet. Access will, however, be possible to anyone who demonstrates a legal interest in avoiding money laundering. This could arguably include a party undertaking due diligence prior to transacting with a Czech company or a party engaged in a dispute with one.
The information is principally intended to be used by the police and other public authorities, such as anti-money-laundering authorities, tax authorities, public prosecutors, and the courts. An excerpt from the database of ultimate beneficial owners will also be provided to the company filing the UBO information.
No Fine, But…
The Act does not (as yet!) provide for fines for breaches of the new rules relating to UBOs. Affected persons should not, however, believe that these rules are toothless. A failure to comply could, for instance, cause problems under procurement rules requiring the full disclosure of ownership structures before a Czech company can enter into a public contract in this country.
By Christian Blatchford, Partner, and Jakub Porod, Associate, Kocian Solc Balastik