New national central register: ownership structures and beneficial owners must be notified

„The German Government tightens up its fight against money laundering!“ This was the goal for the implementation of the EU’s Fourth Money Laundering Directive in Germany. One of the most essential components of this Directive is the new central electronic transparency register. All legal entities and business partnerships must inform the register about their ownership structure and, in particular, the identity of any beneficial owners.

Companies affected had until 1 October 2017 to comply with this registration obligation.

The transparency obligations apply to any legal entities governed by private law, any registered partnership or other „corporate structures“, including trusts and unregistered foundations and similar corporate structures. The goal of the German legislator is to store information about the beneficial owner and to ensure transparency with respect to the natural beneficial owners behind each company. In the future, every Member State of the European Union will have a central transparency register. The transparency registers of the individual Member States will be connected to each other.

Who is a beneficial owner?

Each natural person, who holds or controls more than 25% of a company’s capital shares or voting rights or exercises control in a similar manner is regarded as a beneficial owner. This also includes indirect control. The new transparency obligations apply to agreements between several shareholders. In addition, greater transparency is required for trust relationships and voting trust agreements. The beneficial owner’s place of residence is irrelevant. Foreign beneficial owners of a German GmbH (limited company), who have their place of residence abroad, will therefore have to be report their ownership to the German transparency register. Administrators of foreign trusts, who have their place of residence in Germany, must also report their details to the transparency register.

Obligations for companies

The companies affected are obligated to gather, keep and update the details of their beneficial owners. Accordingly, the beneficial owners are obligated to provide the companies with the relevant information. The obligations also apply where the beneficial owner’s place of residence is abroad. The obligation to send information to the transparency register applied for the first time from 1 October 2017.

Impending penalties

Simple cases of non-compliance with the information obligations can lead to fines of up to EUR 100,000.00. Serious, repeated or systematic violations can lead to fines of up to EUR 1 million or double the amount of the economic advantage gained from the violation, which may even exceed EUR 1 million. Violations of the companies‘ obligations to provide information on the corporate structure of the shareholders, as well as beneficial owners, carry administrative fines. Here the „naming and shaming“ approach is used: in the future all decisions on fines will be published on the websites of the competent authorities, including the names of the persons responsible.

Exceptions

To the extent that the details of the beneficial owners are already accessible from documents or other public registers, registration under the transparency register shall be deemed to be fulfilled. In this case it is sufficient that the information can be gathered from other public registers. Where companies are unable to determine the beneficial owners, despite investigations, the companies are entitled to provide the transparency register with the name of their legal representative as the „beneficial owner“. How extensive such investigations must be in order to use this legal representative exception will depend on the individual case.

Access to the transparency register

Generally, the transparency register is a publicly accessible register. Every person with a „legitimate interest“ is entitled to information. Although the plan is to treat the right to access the register restrictively, it is unclear to what extent this will be put into practice.

Conclusion

Companies and their corporate bodies as well as direct and indirect shareholders are required to immediately comply with the new obligations. Now that the transparency register is up and running, all companies and other associations in Germany should verify whether they need to register or take further action.