Germany Update: What is a beneficial owner?

The term “beneficial owner” is currently on everyone’s lips. Behind this inconspicuous term hide sometimes complicated investigation methods and for most companies relevant obligations to act. We explain to you what a beneficial owner is and what must be observed in particular with regard to the obligation to report to the transparency register.

The beneficial owner according to the law

The Money Laundering Act provides us with a somewhat unwieldy definition in § 3 (1) sentence 1: “A beneficial owner is the natural person in whose ownership or under whose control a legal person or a legal entity within the meaning of paragraph 3 ultimately stands, or the natural person at whose instigation a transaction is ultimately carried out or a business relationship is ultimately established.” In the case of legal persons, the legislator assumes that anyone who directly or indirectly holds more than 25 percent of the capital shares, controls more than 25 percent of the voting rights or exercises control in a comparable manner is the beneficial owner of a company.

How do I determine the beneficial owner?

First of all, the shareholdings within the company must be determined. If a natural person already directly holds more than 25 percent of the capital or voting shares, he or she is the beneficial owner. Fiduciary agreements or voting agreements must also be taken into account.

In the next step, indirect participations must be taken into account. In this case, the shareholder exercises indirect control over the company subject to reporting requirements. Indirect control exists if the shareholder does not directly (i.e. not in his own name) hold the company shares, but, for example, a GmbH holds these shares and this shareholder can exercise control over this GmbH. A person may exercise indirect control over a company if he holds more than 50% of the company’s shares or controls more than 50% of the voting rights. Thus, at the second and higher levels of participation, the required participation rate increases from >25 % to >50 %.

Where a member can exercise indirect control over a higher-level company, the shares held by that company are allocated in full. Accordingly, in the case of a company that holds 30% of a reportable company, the shareholder with a stake of 60% is not assigned a pro rata 18% (60% of 30%), but the full 30%. At the same time, the requirement to hold more than 50 % of the capital shares or voting rights ensures that the shares of that company are attributed to only one person.

In particular, the consideration of indirect participation may unexpectedly result in the conditions for economic justification, especially in the case of a free float. Therefore, especially in somewhat more complicated situations, companies should very carefully check the existence of a beneficial owner and take into account all relevant factors.

What should be reported to the Transparency Register?

Since 1 August 2021, all companies subject to registration must report their beneficial owners to the Transparency Register. The information on the beneficial owners subject to registration includes first and last names, date of birth, place of residence, type and scope of economic interest and all nationalities. This information must always be kept up-to-date. If, for example, the surname or place of residence of the beneficial owner changes, this must be communicated to the Transparency Register. New in this context is the naming of all nationalities of the beneficial owners, but there is no need for independent reporting of other nationalities. However, the other nationalities must be subsequently reported at the next notification to the Transparency Register.

What happens if there is no beneficial owner?

If no natural person involved in the company fulfils the requirements of a beneficial owner, the legal representatives are considered so-called fictitious beneficial owners. For example, if five people each hold 20% of the shares, no person exceeds the necessary 25% participation rate. If there is no actual beneficial owner, all legal representatives of the company must be reported to the transparency register; in the case of an AG, these would be all board members and in the case of a GmbH, all managing directors.

Can access to the transparency register be restricted?

The transparency register may be inspected without restriction by courts, various authorities, banks, insurance companies and certain professional groups. However, after registration and application, anyone can (limited) inspect the transparency register.

With regard to individual professional groups and the public, the possibility of accessing the transparency register may be restricted in whole or in part upon request. In such a case, there must be overriding interests worthy of protection of the beneficial owner. These exist, among other things, if the beneficial owner is at risk of becoming a victim of certain serious crimes due to the inspection. However, such restrictions are very rarely granted.

If you have any questions about the beneficial owner or your obligations under the Money Laundering Act, please do not hesitate to contact us. We support you in identifying and notifying the beneficial owners to the Transparency Register.

By Lennart Hoffmann, MELCHERS, Germany, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact germany@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.