By attorney-at-law Rasmus Zoffmann Knudsen, advocaterne.com
As in all EU member countries Denmark has implemented the 4th EU Anti-Money Laundering Directive. The Danish parliament has done so by changing several existing laws including the Danish Companies Act. The new rules imply that Danish companies, irrespective of whether these are established in the form of A/S, ApS, K/S, IVS or as a foundation, shall register information about their beneficial owners.
With effect from 23. May this year, the Danish Business Authority (Erhvervsstyrelsen) has opened up for the actual registration of the beneficial owners in the publicly available register administered by the same authority. Parallel to this, the Business Authority has issued a set of guidelines on how to register the beneficial owners, also describing how the authority intends to administer the new rules. The affected companies will have until 1 December 2017 to have complied with the new requirements and to have completed the first registration of the respective beneficial owners.
In this newsletter, we will provide a short overview of the new rules.
Beneficial Owners – who and what must be registered?
What must be registered is information concerning the persons who control a company. These persons are referred to as Beneficial Owners which will mark a separate category to the existing category of Legal Owners, which is specifically focusing on the direct ownership of a given company and which is already being used when registering the direct owners in the existing Central Business Register of Denmark. With the new rules, only natural persons can be registered as beneficial owners. Limited liability companies or foundations or other legal entities cannot be beneficial owners. Whether the beneficial owner is resident in Denmark or in EU is not relevant for the duty to register. As an important exception, companies whose shares are traded at a stock exchange by default have no beneficial owners. However, for these companies the Executive Management must be registered as the beneficial owners together with a remark that the company is a stock exchange company.
In addition to being natural persons, beneficial owners are characterized by the fact that their control of a company can be indirect, for example through the ownership of a holding company or through a transfer of voting rights in the company etc. The new rules will therefore primarily be of importance to Danish companies which are part of a holding structure.
Whether a person is considered a beneficial owner of a given company is subject of an independent and specific evaluation of the actual control which the person holds over the company. However, as a rule of thumb an aggregate control of 25% of a company (whether through capital or voting rights) will create an assumption that the person is a beneficial owner.
If no beneficial owners can be identified or if the company does not have any beneficial owners, the Executive Management of the company must be registered as the beneficial owners.
In addition to the identity of the beneficial owners, also the nature of which the registration is made must be recorded. For instance, it must be recorded if the registration is due to a direct or an indirect ownership or because the person is part of the Executive Management. In other words, it will not be sufficient just to register the identity of the person.
Who should pay attention to the new rules?
It is the company’s own duty to identify its beneficial owners. In practice this means that it will be the Executive Management, being the persons who are overall responsible for the company, who must ensure compliance with the rules. Although the tasks can be delegated to entrusted employees or external advisors, this will not change the fact that the duties initially lie with the Executive Management.
The Executive Management shall perform all reasonable efforts to identify the beneficial owners just as it will be the Executive Management who shall make the initial evaluation of who are to be considered beneficial owners. Finally, the Executive Management must ensure that documentation for these efforts are stored by the company. The fact that these broadly defined duties are imposed on the companies must be considered somewhat of a legal innovation in the Danish corporate system, although these mechanisms have also been seen in other regulations which are based on EU-directives. It should be considered evident that prudent companies should incorporate dynamic business procedures which will ensure the company’s compliance with the new rules and which can be disclosed to the national authorities, if required.
In most situations, the new rules should be unproblematic and straight forward to comply with. However, the rules will in effect create a conflict of interest between the Executive Management and the beneficial owners in companies where the beneficial owners do not wish to have their ownership registered but where the Executive Management is nevertheless familiar with the identity of the beneficial owners.
Continuous updating required
Since registration of beneficial owners should reflect the current control of the affected companies, the Executive Management must on an ongoing basis ensure that the major changes in the control of their company are duly registered. One way to handle this challenge could be to ask for a written statement about the beneficial owners from the direct legal owners, for instance when the company calls for meetings of shareholders.
Please feel free to address any questions or comments about the new beneficial owner rules to the author of this newsletter or to a lawyer at advokaterne.com