Step-by-Step Registration

What documents are needed

The documents evidencing the ultimate beneficial owner’s position and the ownership structure of the legal entity are necessary for the registration. These may include the following:

• Extracts from a Commercial Register (or a similar public register) or from a Register of Beneficial Owners of all companies belonging to the corporate chains leading to the ultimate beneficial owner(s) (extracts from the Czech Commercial Register are not needed);
• Lists of shareholders of all companies defined above (unless stated on the extract from the commercial register);
• Shareholder declaration of concerted action (if applicable);
• Declarations by the registrant or by the ultimate beneficial owner as per the ultimate beneficial owner’s status or the registering company’s ownership structure, if based on a legal fact that cannot be supported even if all reasonable efforts have been made;
• Constitutive legal acts (e.g., Articles of Association);
• Copies of the ultimate beneficial owners’ identification documents;
• Document proving the date the ultimate beneficial owner’s position started.

All these supporting documents:

• will not be publicly available;
• need to be less than three months old; and
• need not to be legalized, simple copies are sufficient.

The registration or any updates in the Register of Ultimate Beneficial Owners must be initiated without undue delay (this is usually considered to be within 15 days) in the following situations:

• The existing company has not yet filed its ultimate beneficial owner details with the Register of Ultimate Beneficial Owners.
• The details of the ultimate beneficial owners already registered have changed, or the details of the company’s ownership structure have changed.
• The ultimate beneficial owners have changed.
• A new company has been registered in the Commercial Register.

Automatic data exchange

Automatic data exchange is a mechanism for transferring certain information from the Czech public registers into the Register of Ultimate Beneficial Owners. Natural persons registered in the Commercial Register in specific positions are automatically registered as ultimate beneficial owners given that specific legal prerequisites are met.

Example No. 3

Mr. Dan, a natural person, is a new 100% shareholder of Kappa s.r.o. Mr. Dan is listed as the sole shareholder in the Commercial Register. On the basis of the automatic data exchange, he is immediately listed as the ultimate beneficial owner of Kappa s.r.o. in the Register of Ultimate Beneficial Owners as well as the ultimal beneficial owner in Omega s.r.o. which is 100 % owned by Kappa s.r.o.

The Register of Ultimate Beneficial Owners is available on the website of the Ministry of Justice.

Who can access the Register of Ultimate Beneficial Owners in the Czech Republic

The Register of Ultimate Beneficial Owners is partially public. The information that is publicly available includes:

• Name, residency, and date of birth (month and year) of the beneficial owner
• Specification of the beneficial owner’s position
• Indication of the beneficial owner’s direct or indirect shareholding
• Date when the person became the beneficial owner

The ownership structure is not publicly available.

Full information about the beneficial owner, including the registration history, can be obtained by the following persons:

• beneficial owners themselves;
• authorised person who submitted the proposal for registration of the beneficial owner;
• notaries;
• subsidy providers;
• authorities and institutions for the purposes of AML control;
• tax office, banks, etc.

A. Irregularity Proceedings

• The irregularity proceedings are dealt with by the competent Registry Court.
• The aim is not to punish the legal entities who have failed to proceed with the registration (or registration updates) but, rather, to correct any factual inaccuracies in the Register of Beneficial Owners, thus maintaining the quality and reliability of its contents.
• They may be initiated by a public authority, or a person entitled under the AML Act, e.g. a bank or an auditor.

The court will publish a note on irregularity in the Register which may have a negative impact on the company by decreasing its credibility.

B. Public law consequences

• A fine of up to CZK 500,000 can be imposed for a failure to enter or update the information in the Register of Beneficial Owners following the irregularity proceedings.

C. Private law consequences

The private law consequences will occur independently of the irregularity proceedings; they are not tied to the court’s previous finding that there is an irregularity in the records.

These arise if:

• a correct person was not registered, or
• no information on the beneficial owners was registered.

Hence, these measures particularly target the unregistered beneficial owners. If the beneficial owner is registered, but some of their details are inaccurately registered or not entirely up to date, the private law consequences do not apply. However, we recommend paying attention to two different scenarios that may occur:

Example No. 4

Ms. Ela is registered in the Register of Ultimate Beneficial Owners as the ultimate beneficial owner of Iota s.r.o., owning a 60% share in the company. Subsequently, Ms. Ela buys another share in Iota s.r.o., i.e. she now holds 80% of shares. If Ms. Ela does not update the information about her new share in the Register of Ultimate Beneficial Owners, the private law consequences do not arise.

Although the private law measures did not apply in our Example No. 1, we strongly recommend updating any changes concerning the ultimate beneficial owner or the ownership structure in the Register of Ultimate Beneficial Owners.

Example No. 5

Ms. Fay is registered in the Register of Ultimate Beneficial Owners as the ultimate beneficial owner of Sigma s.r.o., owning a 90% share in the company. Mr. Gus owns a 10% share in Sigma s.r.o. Hence, he is not registered as the ultimate beneficial owner. Ms. Fay sells 20% of her share to Mr. Gus, so Mr. Gus now owns 30%. Thus, Mr. Gus should be registered in the Register of Ultimate Beneficial Owners without undue delay. If he fails to do so, the private law consequences shall arise.

What are the specific consequences?

1. Unenforceability of concealing contracts (e.g. command contracts)

• Rights and obligations under the contracts concealing the ultimate beneficial owner cannot be enforced.
• One purpose of such contracts is to manage a legal entity according to the instructions of a certain person who is not formally related to the structure of the legal entity and is not registered in any register. These contracts effectively incorporate a third party as a member of the corporation.
• Such contracts can also be used for legitimate purposes. However, if a position of the ultimate beneficial owner is established thereunder, this fact shall be registered without undue delay.

Example No. 6

Mr. Han formally transferred 100% of the shares of Gamma, a.s. to Mr. Ian but, at the same time, contractually obliged him to exercise all the rights of a sole shareholder according to his instructions for regular remuneration. Mr. Ian is formally registered in the public register as the only shareholder, but in reality, the rights of the shareholder are exercised indirectly by Mr. Han. If Mr. Han is not registered in the Register of Ultimate Beneficial Owners, the contract between him and Mr. Ian is unenforceable.

2. Suspended distribution of dividends

The company that does not have an ultimate beneficial owner registered in the Register of Ultimate Beneficial Owners is prohibited from paying out the dividends as in the situation described in Example No. 7 below.

Example No. 7

• Lambda s.r.o. shall not pay the dividends to the first shareholder, Mr. Joe, who has not been registered as the ultimate beneficial owner in the Register of Ultimate Beneficial Owners;
• Lambda s.r.o. shall not pay the dividends to the second shareholder, Eta s.r.o., which is also owned by Mr. Joe;
• Lambda s.r.o. shall not pay the dividends to the third shareholder, Zeta s.r.o., which is owned by Ms. Kay, since Ms. Kay has also not been registered in the Register of Ultimate Beneficial Owners.

3. Inability of shareholders to exercise their voting rights

Suspension of voting rights at the general meeting (inability to make decisions on the most important matters of the company, e.g. change of the Deed of Incorporation in a form of the Notarial Deed, approval of the financial statements, change of directors etc.).

Who may have the voting rights suspended?

Example No. 8 (please, refer to the diagram in Example No. 7)

• Mr. Joe, who is the first shareholder and the unregistered ultimate beneficial owner of Lambda s.r.o will have his voting rights suspended.
• Eta s.r.o., the second shareholder of Lambda s.r.o., will have its voting rights suspended as it has also failed to register Mr. Joe as the ultimate beneficial owner.
• Zeta s.r.o., the third shareholder of Lambda s.r.o., will have its voting rights suspended as it has also failed to register its ultimate beneficial owner – Ms. Kay (although it concerns a different person than Mr. Joe).

What are the consequences if the voting rights are nevertheless exercised and decisions are adopted?

Such decisions are deemed invalid. The invalidity of these legal actions can be claimed within a subjective period of 3 months and an objective period of 1 year.

D. Other consequences

There are other consequences the companies may face in the course of their business should they fail to proceed with the registration of ultimate beneficial owners (the list is not comprehensive):

• inability to enter into certain business relations, to conclude business contracts;
• banks will not provide loans;
• bank account blocking;
• impossibility to participate in public procurement contracts;
• the company loses its credibility in general, especially if a note on irregularity has been published in the Register of Ultimate Beneficial Owners.

Which legal entities are obliged to register their ultimate beneficial owners?

The obligation to register the ultimate beneficial owners is imposed on legal entities who have their registered office in the Czech Republic. This includes all types of corporations (unlimited partnerships, limited partnerships, limited liability companies, joint stock companies, European companies) and some cooperatives. Foundations, endowed institutions, and public benefit corporations must also register their ultimate beneficial owners.

Trusts are also obliged to register their ultimate beneficial owners. However, trusts do not have a legal entity status, and therefore the registration obligations fall on the trustee. If a trust has a trustee with their registered office or residence in the Czech Republic (which can be found in the public part of the Trust Fund Register), it should have, as a rule, its ultimate beneficial owner entered in the Register of Ultimate Beneficial Owners.

Legal entities which are not obliged to register their ultimate beneficial owner are listed on page 6 of this eBook.

Does a branch of a foreign company have to register their ultimate beneficial owner?

No, it does not. A branch is not a legal arrangement within the meaning of the Act on the Register of Beneficial Owners.

Who is the ultimate beneficial owner in the case in which a parent company is a company listed on a regulated market?

The companies listed on a regulated market are not exempt from the registration obligation. We either look for the ultimate beneficial owner (natural person) with ultimate ownership or control, or apply the alternative solution of registering the substitute beneficial owner (please refer to page 6 of this eBook).

What if the parent company / ultimate beneficial owner does not provide necessary cooperation?

If the parent company is from outside the EU, it is necessary for the registrant to explain the importance of the supporting documentation and, additionally, document that they have made reasonable efforts to obtain such information from the parent company / ultimate beneficial owner. If the parent company / ultimate beneficial owner does not provide the necessary cooperation, the registrant shall register the top management of the parent company or the top management of a company, which is one level under the parent company.

It should be noted that failure to provide the necessary cooperation, on the part of the ultimate beneficial owner / parent company / other companies within the corporate chain, can result in the court initiating the irregularity proceedings (for the reason of the irregularity on the part of the person obliged to cooperate, please see page 10), which in turn may affect other sanctioning mechanisms.

Will I receive any decision on the registration?

There is no decision on the registration. If the registration is successful, the registrant shall receive a full extract of the registering entity from the Register of Ultimate Beneficial Owners (including non-public information) It is provided either by a notary or a court.