It is generally known that from the date of death of the testator to the date on which the inheritance resolution becomes final within the meaning of Section 203(1) of Act No. 161/2015 Coll. Civil Non-Contentious Procedure (hereinafter referred to as “CMP”) may elapse, often lasting several months or years. During this period, the question arises as to which person or persons will inherit the business share in a limited liability company, as well as questions about the resulting consequences for the rights and obligations of a partner in a commercial company, also arising from Act No. 315/2016 Coll. on the register of public sector partners and on amendments to certain laws (hereinafter also referred to as “Act No. 315/2016 Z. z.”) - specifically during the period from the death of the testator until a final decision on these issues is made in the inheritance resolution.
According to Section 114 of Act No. 513/1991 Coll. Commercial Code (hereinafter also referred to as “OBZ”), a business share represents the rights and obligations of a partner and their corresponding participation in the company. Ownership of a business share is associated with the right to a property share in a commercial company, but also with other rights of a partner, such as the right to participate in the exercise of the powers of the general meeting, the right to request information from the managing directors about the company's affairs, the right to inspect the company's documents, etc. A business share thus carries both property rights and personal rights. According to Section 116 of the Commercial Code, a business share is inheritable. The articles of association may exclude the inheritance of a business share if the company does not have a sole shareholder. If the heir is not the sole shareholder, they may seek the cancellation of their participation in court if it cannot be reasonably expected of them to be a shareholder; the provisions of Section 113(5) and (6) of the Commercial Code apply accordingly. In the event of inheritance of a business share, it passes to the heir in the same way as other property of the testator upon the testator's death.
The heir to a business share in the case of inheritance by law may only be a natural person, and in the case of inheritance by will, a natural person, a legal entity or the state (in accordance with Section 21 of the Civil Code).
In the event of the death of a partner in a limited liability company, there is no reason to dissolve the company, as the business share passes ex lege to his legal successor. A business share will not be inherited if inheritance of a business share is expressly excluded in the articles of association. In the case of a single-member company, the exception to the exclusion of inheritance of a business share does not apply. In accordance with the Constitution of the Slovak Republic, the inheritance of a business share is therefore also guaranteed. The heir to a business share inherits it as a whole and may either accept or reject it. If there is only one heir to a business share, they take the place of the deceased partner and assume all of their rights and obligations. If there are several heirs and they cannot agree on who will inherit the business share, the business share is inherited by several heirs. A so-called joint business share is created, in which the co-owners act in relation to the company as a single owner and exercise the rights and obligations associated with the share through a joint representative. Pursuant to Section 114(3) of the Commercial Code, "One business share may belong to several persons. These persons may exercise their rights from this business share only through a joint representative and are jointly and severally liable for the repayment of the contribution. If one business share belongs to several persons, the commercial register shall record the amount of the contribution to which this business share relates, the extent of its repayment, as well as information on the joint representative and the individual persons to whom the business share belongs, in the case of legal persons, their business name or name and registered office, and in the case of natural persons, their name, surname and place of residence."
Pursuant to Section 117 of the Commercial Code, a business share may be divided upon transfer to an heir, but only with the consent of the general meeting. If the general meeting does not agree to the division of the business share by the end of the inheritance proceedings, the rights and obligations of the partner to the inherited business share will be exercised by several heirs in accordance with the aforementioned Section 114(3) of the Commercial Code, where one business share belongs to several persons.
If the articles of association exclude the inheritance of a business share, the business share of the deceased partner becomes free, and the heir is entitled to a settlement share pursuant to Section 150 of the Commercial Code. “The compensation share is calculated as the ratio of the paid-up contribution of the partner whose participation in the company has ceased to the paid-up contributions of all partners, unless the articles of association provide otherwise.” In addition to excluding the inheritance of a business share, the articles of association may also stipulate that some business shares cannot be inherited, while others can. An agreement whereby, in view of the subject matter of the inheritance, the inheritance of a business share by an heir who, for example, is not of legal age at the time of the testator's death would be excluded, would be guaranteed.
In inheritance proceedings concerning a business share representing more than half of the total share in a company, the institution of estate administrator under Section 179 of the CMP shall be used. Pursuant to Section 179 of the CMP: "If necessary, the court shall, even without a motion, take urgent measures, in particular secure the inheritance, make an inventory on the spot, entrust items of personal use to the spouse of the testator or another member of the household, arrange for the sale of items that cannot be stored without risk of damage or disproportionate costs, or appoint an administrator of the estate or part thereof." The administrator shall be one of the heirs or a close relative of the testator. Only a person who agrees to the appointment may be appointed as administrator. According to Section 184(1) of the CMP: “The administrator of the estate shall perform the acts necessary to preserve the property belonging to the estate, to the extent determined by the court.”
Ultimate beneficial owner based on the status of a partner
In the case of inheritance of a business share identified as the ultimate beneficial owner, compliance with the obligation to register a change in the person of the ultimate beneficial owner of a public sector partner may be relatively difficult.
It is indisputable and clear that the testator, as the deceased partner, is no longer the ultimate beneficiary under Section 6a(2) of Act No. 297/2008 Coll. on the protection against the legalization of proceeds from criminal activity and on the protection against the financing of terrorism and on amendments to certain acts (hereinafter also referred to as the “AML Act”) from the moment of his death. The authorized person is therefore obliged to reflect this fact and delete the deceased partner who is identified as the ultimate beneficiary of a public sector partner from the register of public sector partners.
However, in view of the above, it is questionable which person should be registered as the beneficial owner instead of the deceased partner as the beneficial owner.
In this case, it is necessary to assess the impact of the death of the testator, who was also identified as the ultimate beneficiary of a limited liability company and whose status as the ultimate beneficiary of a public sector partner also resulted from the ownership of a business share (as a partner) with the related rights and obligations of a partner, and the impact of the transfer of the business share to the heir on the identification of the ultimate beneficiary.
Before the assessment itself, we would like to state the basic legal obligations of the public sector partner and the authorized person. Pursuant to Section 9(1) and (2) of Act No. 315/2016 Coll., quote: "(1) If there is a change in the data entered in the register concerning the ultimate beneficiary, the public sector partner shall immediately inform the authorized person entered in the register, and that authorized person shall notify the registering authority within 60 days of the date of the change and attach a verification document to the application for registration. (2) If the authorized person entered in the register becomes aware of a change in the data entered in the register pursuant to paragraph 1, they shall immediately inform the public sector partner thereof.
Pursuant to Section 11(10) of Act No. 315/2016 Coll. z., cit.: "(10) The final beneficiary is obliged to notify the public sector partner within 15 days of becoming aware that it has become the final beneficiary of the public sector partner and to deliver the notification to the authorized person registered in the register. The notification referred to in the previous sentence shall not affect the obligations of the public sector partner and the authorized person under paragraphs 1 to 9 and § 9."
Following the death of the final beneficiary of a public sector partner, the public sector partner is primarily obliged to immediately inform the authorized person of the death of the final beneficiary, as pursuant to Section 9(1) of Act No. 315/2016 Coll. z., there has been a change in the data entered in the register of public sector partners concerning the final beneficiary. The authorized person is then obliged to notify the registering authority of this information within 60 days of the date on which the change occurred and to attach a verification document to the application for registration. At the same time, the new ultimate beneficiary is obliged to notify the public sector partner that they have become its ultimate beneficiary within 15 days of becoming aware of this fact. A potential heir to a business share would thus be considered, provided that he or she is aware of this fact, but only if he or she met the defining characteristics of a final beneficiary of a public sector partner prior to acquiring the business share by inheritance. This is often a problem in practice, as it is impossible to assume that these deadlines will be met and that knowledge of the status of the final beneficiary will be obtained in such a short period of time, taking into account the completion of the inheritance proceedings and the final determination of the final beneficiary.
The above-mentioned provisions and obligations under Act No. 315/2016 Coll. should be illustrated with a specific example and consideration should be given to the question of which person can be identified as the final beneficiary if the inheritance proceedings have not yet been completed and the potential heir to the business share does not yet own the business share.
The documents and deeds submitted by the public sector partner to the authorized person show that the public sector partner, as a limited liability company, has a sole shareholder who, as the sole shareholder, owns 100% of the business share, he alone decides on the dismissal and appointment of managing directors and is entitled to all the profits of the public sector partner. This shareholder has died and the inheritance proceedings have not yet been completed.
According to Section 6a of the AML Act, "the ultimate beneficial owner is any natural person who actually controls or supervises a legal entity and any natural person for whose benefit that legal entity carries out its activities or business; ultimate beneficial owners include, in particular, natural persons who:
a) in the case of a legal entity that is not an association of assets or an issuer of securities admitted to trading on a regulated market subject to disclosure requirements under a specific regulation, equivalent legislation of a Member State of the European Union or another state, which is a contracting party to the Agreement on the European Economic Area (hereinafter referred to as a “Member State”) or equivalent international standards, a natural person who
1. has a direct or indirect share or a total of at least 25% of the voting rights in the PVS or in the share capital,
2. has the right to appoint, otherwise establish or dismiss the statutory body, management body, supervisory body or control body of the PVS or any of its members,
3. controls the PVS in a manner other than that specified in points 1 and 2,
4. has the right to economic benefits of at least 25% from the business of the PVS or from its other activities.
In this case, after the death of the ultimate beneficiary of the public sector partner, the authorized person shall verify whether there are persons who meet the defining criteria for identifying a person other than the ultimate beneficiary of the public sector partner. Several groups of natural persons may therefore be considered. If a natural person – the administrator of the estate and thus also of the business share of the sole deceased partner – actually controls and supervises the public sector partner and thus meets the criteria for its identification, they are identified as the ultimate beneficiary of the public sector partner. It is questionable, and depends on the individual assessment of each public sector partner, whether the acts performed by the estate administrator within the scope of his or her legal competence, the scope of which is therefore limited by law (and the courts), can be subsumed and understood as actual control and supervision of a legal entity. If another person, such as a potential heir or several heirs, actually controls and supervises the public sector partner, they may be identified as the ultimate beneficiaries of the public sector partner, even if they have not yet legally inherited the business share and are only potential owners of the joint business share (each of the co-owners of the joint business share participates in the exercise of the rights and obligations that belong to them according to the size of their share in the company, and this exercise of rights and obligations is carried out through a joint representative whom they choose themselves). In this case, the actions of these persons can be understood as joint action, and each of these persons can be identified as the ultimate beneficiary of the public sector partner, as these persons act through an elected joint representative or through an estate administrator. The conclusion of the individual assessment of the public sector partner may be the identification of the ultimate beneficiary as being both the estate administrator and the above-mentioned potential heirs of the deceased partner. In practice, however, it may also happen that, by the end of the inheritance proceedings, no person meets the defining criteria for determining the ultimate beneficiary. In this case, the procedure set out in Section 6a(2) of the AML Act shall apply, and the members of the senior management shall be considered the ultimate beneficiaries of the public sector partner; a member of the senior management is considered to be a statutory representative. 2) of the AML Act, and therefore the members of its senior management shall be considered the ultimate beneficiaries of the public sector partner; a member of senior management is considered to be a statutory body or members of a statutory body. In such a case, the authorized person shall register the members of the statutory body of the public sector partner as the ultimate beneficiaries.
However, what if the partner and managing director of a limited liability company were the same person and, after the death of that person, neither a partner nor a managing director has been in the company for a certain period of time?
In this case, it is necessary to consider the above-mentioned institution of the estate administrator, which undoubtedly has its indisputable significance precisely in the fulfillment of the legal obligations of a commercial company, including the obligations arising from Act No. 315/2016 Z. An administrator of the estate may be appointed, for example, from among the heirs, from among persons close to the testator, or a notary, unless the notary is the court commissioner in the proceedings. The administrator of the estate must have experience in managing a business and must agree to be appointed as administrator. If a notary has already been appointed by the court to settle the testator's estate, it is advisable to apply to the notary for the appointment of an estate administrator. However, if a notary has not yet been appointed, it is possible to ask the court to issue a ruling appointing an administrator for part of the estate and determining the scope of their duties, including the duty to notify any change in the identity of the final beneficiary of the public sector partner.
This is also confirmed by established case law, as according to R 80/2002 (CR) (Collection of Decisions of the Supreme Court of the Czech Republic) "If the testator is the sole shareholder and sole managing director of a limited liability company, the general interest and the interest of the testator's heirs require that an administrator of part of the estate – the testator's share in the limited liability company – always be appointed. The administrator of the testator's business share in a limited liability company shall, for the duration of the inheritance proceedings, perform the necessary acts related to the testator's business share in that company; in particular, he shall exercise the rights and fulfill the obligations arising from the testator's participation in that commercial company."
