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Transparency Register: Stricter Reporting Requirements For Companies

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With the implementation of the 5th Anti-Money Laundering Directive into German law, a revised version of the Money Laundering Act (MLA) came into force on 1 January 2020. The revised version tightens rules that obligate a large number of companies that had previously not been obliged to report the beneficial owner(s) to the transparency register to make such report. The administrative practices applied by the Federal Office of Administration (being the institution competent for the transparency register) so far regarding the transparency register have been maintained in the Office’s FAQs that are available online and kept up-to-date. The Federal Office of Administration last updated these FAQs on 9 February 2020.

Determination of the beneficial owner

In principle, every legal entity organised under private law (in particular limited liability companies (GmbH) and public limited companies (AG)) and every registered partnership (in particular general partnerships (oHG) and limited partnerships (KG)), also in multi-level shareholding hierarchies, must report its ultimate beneficial owner to the transparency register.

To that end, it should first be identified what entities act as direct shareholders who hold more than 25 per cent of shares in the company (capital shares or voting rights) or can exercise control in a similar way. If they are natural persons, they must be reported to the transparency register. If they are a company, the shareholding structure of that company should be examined from the aspects of the MLA. The prerequisite for this is that a natural person must be able to exert a dominant influence on the company in accordance with Article 290 (2)-(4) of the German Commercial Code (HGB).

Beneficial owner due to holding veto rights

While beneficial owners were previously identified based on whether they held shares in the company, now, with the changed administrative practice of the Federal Office of Administration, any shareholder who can veto a decision pursued by the general meeting or shareholders' meeting will be considered a beneficial owner. This means that at the level of indirect shareholding, it is no longer assumed that a dominant influence within the meaning of Article 290 (2)-(4) of the German Commercial Code (HGB) is exercised only when the level of shareholding is more than 50 per cent. The Federal Office of Administration now assumes a dominant influence already on the basis of or in the presence of a blocking minority, veto rights and unanimity requirements. If a company’s articles of association require a qualified majority for making fundamental economic decisions to be adopted by the general meeting or shareholders' meeting, it is sufficient to have the status of a beneficial owner if the shareholder holds a smaller portion of voting rights. If the articles of association even require unanimity for fundamental decisions to be adopted by the general meeting or shareholders' meeting, each individual shareholder is the beneficial owner, even if the shareholder is a minority shareholder. The same applies if the participation of a shareholder in the decision-making process is required by law or under the articles of association. Control within the meaning of a dominant influence can now also arise from holding a combination of capital shares and voting rights.


Outlook

The legislator is planning to change the law as regards the currently existing legal fictions regarding reporting arising from Articles 20 et seq. MLA. Based on those legal fictions, a large number of companies were previously not required to report beneficial owners, but these fictions are to be completely abolished in the future as the transparency register is being designed as a comprehensive information register.


Conclusion

As a result, especially in the case of multi-level corporate structures, each level of the shareholding structure should be viewed separately. It should be examined separately whether control is or can be exercised through capital shares, voting rights or in any other way. Where control is exercised through capital shares, holding a majority of the capital shares is generally required. Control on the basis of voting rights now no longer requires holding a majority of voting rights, but only the ability of individuals to veto shareholder resolutions on the basis of their voting rights.

Currently, missing or incorrect entries in the transparency register with regard to veto rights such as blocking minorities cannot yet be penalised on the grounds of the principle of legal certainty in administrative offence law – however, the legislator is already planning to change the law in this regard. 

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