Corporations: responsibilities and obligations as of April 1, 2018

The European Directive 2015/849/EU of May 20, 2015 required Member States to implement new obligations to combat money laundering and terrorist financing. The order of December 1, 2016 reinforcing this French scheme created, in addition, the register of beneficial owners (BE), necessarily natural persons. Decree 2017-1094 of June 12, 2017, which came into force on August 1, 2017, specified the filing procedures and content of the BE document. Since April 1, 2018, all companies registered in the trade and companies register must have declared their BEs to the clerk of the commercial court.

It should be noted that Article L 561-46 of the Monetary and Financial Code applies to all companies except listed companies.

How to make the declaration?

France has decided to entrust the maintenance of this central register to the clerks of the commercial courts. Since August 1, 2017, companies in the process of being incorporated must declare their BEs and file this document upon registration. Those that were already registered on that date had been granted an additional period to comply. This period expired on April 1st, date on which all companies had to file their declaration, it being specified that the modification of the BE during the company's life must also be filed at the registry. The declaration can vary from simple to complex depending on the characteristics of the shareholding, the voting rights, the holding of the shares...

How to fill in the declaration?

In concrete terms, it is a document containing the identification and contact information of the company and the individuals identified as BE. The clerk's office of the commercial court provides a complete but somewhat complex model. An insert must be filled in for each BE. This document must be signed by the company's director.

When is this deposit due?

For companies being created: within 15 days from the date of filing of the registration file at the registry (cost of filing: 24.80 €).

For companies already established: before April 1, 2018 (cost of filing: €54.42).

For BE changes during the course of the company's life: within 30 days of the act or change (the cost is 48.49 €).

Who are the beneficial owners?

The notion of beneficiary is complex to grasp. According to article R 561-1 of the Monetary and Financial Code, it is the persons "who hold, directly or indirectly, more than 25% of the capital or voting rights of the company or exercise, by any other means, a power of control over the company's management, administrative or executive bodies or over the general meeting of partners." If the partners or managers are legal entities, it is necessary to identify the natural persons who control these companies. Several criteria can be used.

The criterion of holding capital or voting rights

This is a mathematical criterion since it concerns individuals who hold more than 25% of the capital or voting rights in the company. This percentage can be different since there are shares or units that have multiple voting rights.

- This holding will be direct when the OB is a personal partner in the company.

- On the other hand, it will be indirect if the BE is a member of a chain of legal persons. That is to say if he is a partner of a company which is itself a partner. In this case, it will be advisable to specify on the filed list the complete coordinates of all the concerned companies.

The problem with this criterion is that it is difficult to "trace" it back to the natural persons who are themselves partners when the direct holdings belong to legal person partners. A calculation must be made to determine the percentage of indirect holdings of a potential BE.

Let's take an example: Company A has two partners: Mr. S who owns 20% of the capital and company B who owns 80%.

We must therefore look at the situation of company B: Mr. X holds 60% of its capital: we must therefore do the calculation: 80% X 60% = 48%. He is therefore BE of A.

Please note that if a partner is BE for both direct and indirect holdings, all his holdings must be added together to determine whether he owns more than 25% of the capital or voting rights.

The criterion of control of the company

This concept, which has been put forward many times in company law, makes it possible to determine who really controls the company, without any consideration of ownership or voting rights. It is not a question of declaring the legal representative of the company but the person who exercises a power of control over the director, the administration or the general meeting. This may be a power provided for in the articles of association, a shareholders' or partners' agreement or an undivided ownership agreement. This criterion is sometimes difficult to apply when the company's operations are complex.

The default BE: the legal representative of the company

If after "mathematical and legal" studies no BE can be identified, the legal representative(s) of the company will be declared BE.

It is always a natural person, so if the director is a legal person, the natural person who directs it will be declared BE.

What about more complex cases?

As we have just stated, certain situations can make the identification of an OB more delicate. It is impossible to list them here, as a multitude of situations are possible. However, we would like to draw your attention to some of them which require particular vigilance:

- Ownership of shares by minors ;

- Undivided ;

- Ownership of shares by legal entities, which are themselves owned by other legal entities on several levels of ownership;

- Existence of double or multiple voting rights ;

- Dismemberment of social shares.

What are the penalties for not making the declaration?

Failure to declare or the production of inaccurate or incomplete information is punishable by six months' imprisonment and a fine of €7,500 for individuals and €37,500 for legal entities (Article L 561-49 of the Monetary and Financial Code).

Individuals may also be prohibited from managing a business or deprived of their civil and civic rights.

Legal entities risk, among other things, dissolution, placement under judicial supervision and exclusion from public contracts.

What is the purpose of the declaration?

This document, which adds to the legal formalities for the incorporation and modification of companies, is intended to simplify searches by the administration (tax, police or other) in the event of an audit of a company.

This system has been put in place for companies owned by other companies, which are themselves owned and managed by other companies... In this case, the list of BEs, which can become a real headache to draw up (particularly because the percentages of holdings or voting rights can add up), finds its raison d'être. Until now, administrations had to contact several organizations (notably banks) to cross-check sources and obtain information. From now on, they will be able to turn to the registries and, consequently, simplify their research.

Who will be able to access the declaration?

There is no question of undermining the principle of anonymity of companies. The register containing the information is a separate register from the RCS, although it is managed by the clerk of the commercial court. It will not be available to everyone and only certain categories of people will have access to it:

- the company itself can of course ask to consult what concerns it;

- certain authorities such as the public finance administration or the customs, but also the magistrates;

- financial organizations that fight money laundering ;

- any person justifying a legitimate interest upon request to the judge assigned to the supervision of the RCS.

It should be noted that in practice, the declaration of BE has had a difficult start, as the terms of implementation were not always very precise pending the decree on the definition of BE.

Sources: Editions Francis Lefebvre

Going further:

Article on Legifrance: https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000036663091&categorieLien=id

Article on Legifrance: https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000036819435&categorieLien=id

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