Discrepancies in the records of beneficial owners in the commercial register and in the register of public sector partners may have significant legal and practical consequences for the entities concerned. In our practice, we are increasingly encountering situations where entrepreneurs and organizations are unsure who is currently registered as the ultimate beneficiary, or they discover discrepancies between the data in the commercial register and the register of public sector partners. This article follows on from our previous post on the differences between these registers and provides practical answers to questions about why these discrepancies arise, what their consequences are, and how to effectively eliminate them.
In the previous article, we informed you about the difference between registering the end user of benefits in the commercial register and in the register of public sector partners (see https://www.legalfirm.sk/sk/partner-verejneho-sektora/clanok/konecny-uzivatel-vyhod-v-akych-pripadoch-sa-identifikuje-a-registruje).
However, in our professional practice, we are increasingly encountering cases where an entity does not know (or does not know where and how to find this information) which persons are registered as ultimate beneficiaries with this entity in the Commercial Register, or is unable to make a change to the entry of the ultimate beneficiary in the commercial register, or finds that a different ultimate beneficiary is registered in the commercial register than in the register of public sector partners, if it is also registered in the register of public sector partners. This naturally raises the question of how such a situation could have arisen, what its potential consequences are, and, above all, how to remove these discrepancies in the registration of the ultimate beneficiary. The purpose of this article is to provide answers to these questions and offer practical advice on how to remove these discrepancies.
In this context, it should also be emphasized that, in our legal opinion, the obligations to register (and identify) the ultimate beneficiaries can often appear ambiguous and complicated in terms of time and money, and, last but not least, cause an unpleasant administrative burden. However, it should be borne in mind that the obligation to identify the beneficial owner and to register them is based on European legislation governing the protection against money laundering and the fight against terrorism and provides a context for transparency not only in commercial relations.
General obligation to identify the beneficial owner
Act No. 297/2008 Coll. on the prevention of money laundering and terrorist financing and on amendments to certain acts (hereinafter referred to as the “AML Act”) defines in Section 10a(1) 1 defines the obligation that every legal entity that is not a public administration entity and a special-purpose association of assets without legal personality is obliged to identify its ultimate beneficial owner and to keep and continuously update, in paper or electronic form, identification data on the ultimate beneficial owner to the extent specified in Section 7( 3 of the AML Act, the data establishing the status of the ultimate beneficial owner pursuant to § 6a(1 of the AML Act and the data proving the status of the ultimate beneficial owner, if such data are not included in the verification document in the register of public sector partners.
This provision thus requires each entity concerned to identify (know) its beneficial owner and at the same time keep and continuously update identification data on the beneficial owner (this applies to entities subject to mandatory registration in the commercial register as well as foundations, non-investment funds and non-profit organizations providing services of general interest).
Legal basis for the registration of the beneficial owner
The legal regulation of the obligation to register or record the ultimate beneficiary of a specific entity is contained in several legal regulations:
- Act No. 530/2003 Coll. on the Commercial Register and on amendments and supplements to certain acts (hereinafter also referred to as the “Commercial Register Act”)
- Act No. 315/2016 Coll. on the Register of Public Sector Partners and on Amendments to Certain Acts (hereinafter also referred to as the “RPVS Act”)
- in legal regulations governing the status of foundations, non-investment funds and non-profit organizations providing generally beneficial services (however, for the purposes of this article, we will not deal with this regulation)
- Act No. 272/2015 Coll. on the Register of Legal Entities, Entrepreneurs and Public Authorities and on Amendments to Certain Acts (however, active cooperation is not required here when registering the ultimate beneficiary of the registered entity)
Registration of the ultimate beneficiary in the Commercial Register
The obligation to register the ultimate beneficial owner in the Commercial Register is laid down in the Commercial Register Act, specifically in Section 2(3) of the Commercial Register Act, which stipulates that The Commercial Registershall for a legal entity that is not a public administration entity or an issuer of securities admitted to trading on a regulated market, which is subject to disclosure requirements under a special regulation, equivalent legislation of a Member State of the European Union or equivalent international standards, or an entity entered in the register of public sector partners, the identification details of the ultimate beneficiary shall also be entered, including the first name, surname, birth number or date of birth if no birth number has been assigned, permanent address or other address, nationality and type and number of identity document, and information establishing the status of the ultimate beneficiary under a special regulation; information on the type and number of identity document shall not be entered in the commercial register if the person is a citizen of the Slovak Republic. The entry under the first sentence does not replace the obligation to enter the ultimate beneficiary of a public sector partner in the register in accordance with a special regulation.
It follows from the above that the aforementioned registration obligation applies to every entity entered in the Commercial Register, with the exception of public administration entities, issuers of securities admitted to trading on a regulated market and, currently, entities entered in the register of public sector partners.
Original amendment
This obligation was introduced into the Commercial Register Act in 2019 by an amendment – Act No. 52/2018 Coll., amending Act No. 297/2008 Coll. on the protection
against the legalization of proceeds from criminal activity and on the protection
terrorist financing and amending certain acts, as amended, which amended certain acts, amended the Commercial Register Act in Article VII by adding the following paragraph 3 to the above-mentioned Section 2: The Commercial Register shall for a legal entity that is not a public administration entity or an issuer of securities admitted to trading on a regulated market, which is subject to disclosure requirements under a special regulation, equivalent legislation of a Member State of the European Union or equivalent international standards, the identification data of the ultimate beneficiary shall also be entered in the Commercial Register, including the first name, surname, birth number or date of birth if no birth number has been assigned, permanent address or other address, nationality and type and number of identity document, and data establishing the status of the ultimate beneficiary under a special regulation. The entry under the first sentence does not replace the obligation to enter the ultimate beneficiary of a public sector partner in the register in accordance with a special regulation.
It was also stipulated that legal entities referred to in Section 2(3) of the OR Act, as amended with effect from November 1, 2018, entered in the commercial register by October 31, 2018, are required to submit a proposal for the entry of data on the ultimate beneficiary in accordance with Section 2(3) by December 31, 2019. October 2018 are required to submit a proposal for the registration of data on the ultimate beneficiary pursuant to Section 2(3) as amended effective from November 1, 2018, by December 31, 2019. Each entity entered in the Commercial Register was thus required to fulfill the obligation to register the ultimate beneficial owners in the Commercial Register by September 30, 2019, and later, by another amendment, by December 31, 2019.
Failure to register the ultimate beneficiary in the Commercial Register within the period specified by law, or incorrect or incomplete identification of the ultimate beneficiary, was (and still is) punishable by a fine of up to EUR 3,310.
Further amendment
However, it followed from the above that this obligation also had to be fulfilled by entities that already had the ultimate beneficiary registered in the public sector partner register. This registration obligation was administratively burdensome for these entities (those that had already fulfilled their obligation to register in the public sector partner register), and therefore there was a wave of discontent against this legal provision, or rather the double registration of the final beneficiary. The legislator subsequently proceeded to amend the OR Act again, by Act No. 373/2018, amending Act No. 371/2014 Coll. on crisis management in the financial market and amending certain acts, as amended, and amending certain acts of 5 December 2018, which inserted the words “nor entities registered in the register of public partners” after the word “standards” in Section 2(3) of the Commercial Register Act.12.2018, which inserted the words “nor entities registered in the register of public sector partners” after the word “standards” in Section 2(3) of the OR Act. The amendment in this regard took effect on 01.01.2019.
It follows from the above that, in addition to public administration entities and issuers of securities admitted to trading on a regulated market, entities that have their ultimate beneficiaries registered in the register of public sector partners have also been added to the list of entities that are registered in the commercial register and are not required to register their ultimate beneficiaries in the commercial register.
However, before this amendment came into effect, the obligation to register the ultimate beneficiary in the Commercial Register also applied to entities registered in the RPVS from November 1, 2018, to January 1, 2019.
The consequence of two amendments: why is it complicated?
It follows from the above that two situations or two groups of entities registered in the public sector partner register could arise with regard to the fulfillment of their obligation to register end users in the commercial register:
- entities that are registered in the register of public sector partners and fulfilled the obligation to register the final beneficiary in the commercial register at the time when this obligation was imposed by Act No. 52/2018 Coll.
- entities that are registered in the register of public sector partners and have not registered their final beneficiaries in the commercial register, as this obligation no longer applied to them from 1 January 2019
regardless of the fact that the obligation to register the ultimate beneficiary in the commercial register had to be fulfilled by December 31, 2019, and later in an extended period until December 31, 2020.
Following the problems arising in practice after a longer period of time, we are now encountering the following problems:
- an entity has terminated its registration in the register of public sector partners and does not have the ultimate beneficiary registered in the commercial register, as this obligation did not apply to it and it failed to fulfill the obligation to register the ultimate beneficiary in the commercial register after its deletion from the register of public sector partners (as a rule, the entity receives a warning for failure to fulfill this obligation, e.g. from a bank, etc., or even from the commercial register when making other changes to the commercial register) and needs to register the final beneficiary in the commercial register
- the entity does not know who is registered as the final beneficiary in the commercial register (it did not keep this information or it is not available to it for a specific reason, e.g. it cannot find it in its electronic mailbox, or it does not match publicly available data, e.g. from the register of legal entities) and needs to register changes to the registered data on the ultimate beneficiary in the commercial register
Change of ultimate beneficiary in the event of a change in the registered data in the commercial register
If the entity has not fulfilled its obligation as the beneficial owner in the commercial register or the entry is not up to date or incorrect, e.g. due to a change in the ownership structure (e.g. transfer of a business share, transfer of shares or other change in the ownership or management structure of the company), it is always necessary to remember to register or harmonize the entry in the commercial register and identify the ultimate beneficial owner in accordance with the applicable obligation set out in Section 10a of the AML Act. During the existence of a commercial company, it often happens that changes made must also be entered in the commercial register, e.g. a change of business name, a change of registered office, a change of managing director or a change of partner. Some of these changes also result in a change in the ultimate beneficial owner, which must also be entered in the commercial register. The situation is complicated by the fact that these changes in a commercial company cannot be registered in a single submission – changes to the registered data of a commercial company must be made using a change form, and changes to the ultimate beneficial owner must be made using a change form for the ultimate beneficial owner. In addition, the entry of the ultimate beneficiary in the commercial register is not public, and the entity can only see who is registered as its ultimate beneficiary and on what basis from the confirmation of the registration of the change, and this information cannot be obtained from an extract from the commercial register (some information is visible in the register of legal entities, but this only reflects information from the so-called source registers).
Our law firm is ready to provide you with comprehensive legal advice and assistance in registering ultimate beneficial owners in the commercial register and the register of public sector partners. Our experts will work with you individually to resolve any discrepancies and administrative issues related to the registration of beneficial owners to help you ensure compliance with all legal requirements.
