New obligation bearing on companies that are not publicly traded to inform about their “beneficial owner(s)”

November 2017

By Matthieu Bringer and Zineb Laraki

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As part of the fight against tax evasion, Ordinance of 1st December 2016 reinforcing the French scheme of rules against money-laundering and the financing of terrorism, enacted pursuant to the provisions of article 30 of the European Anti-Money Laundering Directive 2015/849 of 20th May 2015, compels a large number of companies and entities registered in France to obtain, keep, communicate, and update the identity of their "beneficial owner(s)" to and with the Trade and Companies Register (Registre du Commerce et des Sociétés).

For companies and entities registered before 1st August 2017, these requirements must be satisfied before 1st April 2018. As regards companies registered after such date, these obligations are already in full force and effect.

Entities affected by these new obligations

According to a new article L. 561-46 of the French Monetary and Financial Code, the following entities are subject to the "beneficial owners" regime:

1-        companies and economic interest groups having their headquarter in a French département and possessing a legal personality;

2-       commercial companies with registered office outside of a French département and with at least one establishment in one of such départements; and

3-       other legal entities the registration of which is required for by law or regulation.

This article expressly excludes companies the securities of which are admitted to trading on a regulated market in France or in another State party to the agreement on the European Economic Area.

Consequently, all unlisted, civil or commercial companies of any form whatsoever (Civil Companies, Limited Liability Companies, Simplified Joint-Stock Companies, etc.), Economic Interest Groups, branches of foreign companies and more generally all entities the registration of which in the Trade and Companies Register is mandatory under the provisions in force, are bound by this new declarative obligation regarding beneficial owners.

Definition of "beneficial owner"

The article L. 561-2-2 of the Monetary and Financial Code defines the "beneficial owner" as "the natural person or persons who ultimately control, directly or indirectly, the client; and on whose behalf a transaction or activity is being conducted".

Are considered as possessing or controlling the company or the grouping, the natural person or persons who hold directly or indirectly (i.e. through one or more companies or groups) more than 25% of the capital or of the voting rights, or hold by any other means, a power of control over their management, administrative bodies or boards, or over the general meeting of shareholders (article R. 561-1 of the Monetary and Financial Code). It should be noted that the definition of "control" given by article L. 233-3 of the French Commercial Code is not included in this framework.

In the fight against tax evasion or money laundering, the identification of the beneficial owner is of great importance since the majority of complex arrangements involve shell companies, offshore entities or nominees, often located in a complacent State, in order to conceal the real identity of the owner of the assets or the beneficiary of the income subtracted from taxation or laundered. This new regulation therefore requires to provide the identity of the ultimate natural holders of the concerned entities. Some of our clients, including family-owned groups, who are committed to comply with any tax or money laundering regulations, are often reluctant to share information about their ultimate ownership. Their position will therefore have to change, however the way the aforementioned information will remain in restricted access should reassure them.

Deadlines and document content

Ø  New company:

Since 1st August 2017, the document relating to the beneficial owner must be submitted to the clerk of the Commercial Court at the time of the new company registration application is filed with the Trade and Companies Register or at the latest within fifteen days following the acknowledgement of receipt of the file concerning the creation of the company.

Ø  Existing companies:

For companies registered before 1st August 2017, they are granted until 1st April 2018 to submit the document relating to the beneficial owner to the Trade and Companies Register.

Ø  Information update over time:

In addition, a new document must be submitted within thirty days following any event necessitating an addition or a rectification of the information mentioned in the initial document.

Ø  Content of the document:

The document must indicate information about the company as followed: its name or corporate name, its legal form, the address of its headquarter and, if applicable, its unique identification number supplemented by the mention “RCS” followed by the name of the city where is located the clerk where it is registered.

The document must also contain the following information about the beneficial owner(s): family name, “nom d’usage” (surname), first name, date and place of birth, nationality and personal address; the terms of the control applied over the company or legal entity by these natural persons; the date on which those natural persons became beneficial owner(s).

The question needs to be raised as regards the identification of the beneficial owner of a company or entity owned directly or indirectly by a foreign trust (knowing there is a national register of trusts in France). However, the legislator did not anticipate this issue, thus it is still an open question at this point.

Ø  Costs incurred by the declaration

The submission of the required information in the register of beneficial owners has a cost that must be borne in mind, especially for groups of companies with numerous subsidiaries. Indeed, declarations are made individually by each legal person.

o    Submission of the document relating to the beneficial owner with the application for registration or at the latest within fifteen days following the acknowledgment of receipt of the file in respect of the creation of a company: € 24.71; ;

o    Submission of the document amending or supplementing the document relating to the beneficial owner already filed: € 48.39; ;

o    Submission of the beneficial owner declaration by legal entities registered before 1st August 2017, to take place no later than 1st April 2018: € 54.32..

Access to the document

Although public, the information collected in the register will only be communicated to a limited number of persons. Articles L. 561-46 and R. 561-59 of the Monetary and Financial Code enumerate an exhaustive list of persons and authorities entitled to access the register:

-          the company or legal entity that submitted it;

-          without restriction, the following competent authorities in relation to their mission:

·         judicial authorities;

·         the national financial intelligence unit;

·         customs administration agencies acting on the basis of the prerogatives conferred by the Customs Code;

·         authorized officials of the public financial administration responsible for tax control and recovery;

·         the supervisory authorities mentioned in article L. 561-36 (notably the ACPR (insurance authority) and the AMF (public companies’ authority));

-          persons subject to the fight against money laundering and the financing of terrorism based on of at least one of the vigilance measures provided for in the Monetary and Financial Code;

-          any other person who has a legitimate interest and is authorized by the judge designated to oversee the Trade and Companies Register with which the company or legal entity is registered.

Penalties for failure to comply with the beneficial owner's declaration obligation

Article L. 561-48 of the Monetary and Financial Code provides that the President of the Commercial Court, ex officio, or at the request of the prosecutor or of any person justifying an interest, may order, under penalty if necessary, to any company to proceed with the filing of documents relating to the beneficial owner to which the company is subject pursuant to the second paragraph of article L. 561-46 of the Monetary and Financial Code.

In addition to this power of injunction, the failure to file the document relating to the beneficial owner or the filing of inaccurate or incomplete information is punishable by six months of imprisonment and a fine of 7,500 euros for natural person that are the legal representatives of the concerned company and by five times this fine, i.e. 37,500 euros, for the legal person itself pursuant to article L. 561-49 of the Monetary and Financial Code. It should be noted that article L. 561-46 of the Monetary and Financial Code is clear on the fact that it is the entity’s obligation to communicate all the required information on its beneficial owners to the Trade and Companies Register (RCS) and not the other way around. In other words, the beneficial owners cannot be sued in case of failure to communicate this information.

Convicted individuals as the result of this offense, may also face sentences such as the prohibition of management or the partial deprivation of civil and civic rights (articles 131-26 and 131-27 of the Criminal Code).

The complementary penalties listed in annexes 1 °, 3 °, 4 °, 5 °, 6 °, 7 ° and 9 ° of article 131-39 of the Criminal Code are applicable to legal persons concerned by the absence of declaration: the dissolution, the placing under judicial supervision, the temporary or definitive exclusion from public procurement contracts, the temporary or definitive prohibition to make a public offer of financial securities or to have its securities admitted to trading on a regulated market, the display of the decision pronounced or its circulation by written press or by any means of communication by an electronic way to the public.

Conclusion :

The declaration of the beneficial owners will probably be seen by the companies concerned as a new administrative constraint, and furthermore not free. Regardless of the objectives pursued by the texts, difficult to criticize, which is to reveal concealed chains of ownership to promote transparency, fight against tax fraud, corruption and terrorism, the information transmitted to the Trade and Companies Register in this context can only be consulted by a limited number of people and in very specific cases. This information is not to be made available to the public.

On this basis, taking into accounts the penalties for not making the required declarations and the lack of hindsight in sanctioning breaches, the concerned entities may only be encouraged to comply with these new rules within the prescribed deadlines.

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