Act on the Registration of Beneficial Owners – other sanctions

Act on the Registration of Beneficial Owners, which comes into effect on June 1, 2021, regulates besides offences also other sanctions which relate to non-registration of beneficial owner into the register of beneficial owners. This specific issue is analyzed in this news.

First of all, it is necessary to introduce private law sanctions, which are connected with participation of a shareholder in the company.

If the beneficial owner of a business corporation is not registered in the register of beneficial owners, neither the beneficial owner nor the legal entity of which he/she is also the beneficial owner, must not exercise voting rights during decision-making by the supreme body of this corporation or to make a decision as the sole shareholder. A legal entity or who acts on behalf of a juridical organization (i.e., trust fund or foreign trust fund) must not exercise voting rights in a business corporation during decision-making by the supreme body or must not decide as a sole shareholder, if their beneficial owner is not registered.

Further if the beneficial owner of a business corporation is not registered in the register of beneficial owners, the business corporation must not pay a share in proceeds (for example share in profit) either to the beneficial owner, or to the legal entity or juridical organization, of which they are also the beneficial owner. Likewise, the business corporation must not pay a share in proceeds to any such legal entity or juridical organization, which does not have a beneficial owner registered in the register of beneficial owners.

A breach of the ban on exercising voting rights can lead to invalidity of the decision of the general meeting (sole shareholder), which can result in the obligation of the shareholder to return to the company any performance, which was provided on the base of such invalid decision. If, despite of the legal ban, the statutory body paid a share in proceeds, it would act in contradiction with the care of a proper manager.

Indirect sanctions for not registering the beneficial owner arise also from the Act on Public Procurement.

Contracting authority is obliged to exclude the contractor, who is a Czech legal entity, if it has not registered the beneficial owner in the register of beneficial owners. In case, a company has registered data about beneficial owner in the register of beneficial owners, but the contracting authority discovers that the information about the beneficial owner are incorrect, the contracting authority can withdraw from the agreement for the public contract or give notice. However, if it is only a typographic error or the contractor was not aware of such error, it is no possible to withdraw from the agreement for the public contract or to give notice.