UBO: what is it and why is it important to you?
In the current economic climate, there is an increasing focus on transparency. The business world of corporate structures is no exception. In the past, complex legal structures could create a great deal of uncertainty about who ultimately held the reins within a company. That is much more difficult nowadays. The linchpin in this web of transparency is the so-called UBO, or Ultimate Beneficial Owner.
For entrepreneurs, directors and regulators, it is crucial to know who the UBO of a company is. We, as lawyers, are also obliged to carry out sufficient due diligence on the client, including an investigation into the UBO. We also assist clients with registering the UBO in the UBO register.
Basis
The legal obligation to register UBOs stems from European legislation, which has been implemented in the Netherlands via the Money Laundering and Terrorist Financing (Prevention) Act (“Wwft”) and the Trade Register Act 2007. The primary aim of this legislation is to combat financial and economic crime. By providing clarity on which natural persons ultimately own or control a legal entity, it becomes more difficult for criminals to hide behind complex corporate structures.
Who qualifies as a UBO?
In principle, the simpler the corporate structure, the easier it is to identify the UBO. The UBO is defined as the natural person who is the ultimate owner of, or has control over, a company or legal entity.
When determining who must be reported as a UBO, a number of criteria are usually considered. The key question is usually whether a natural person holds or can exercise more than 25% of a relevant interest. In the UBO declaration, it is mandatory to state the range within which the interest falls: 25–50%, 50–75% or 75–100%
The following must be examined in turn:
(a) Shareholding: Does anyone (directly or indirectly) hold more than 25% of the shares? If so, that person is generally registered as a UBO on the basis of the shareholding.
(b) Voting rights: A person who can independently cast more than 25% of the votes within the organisation may qualify as a UBO.
(i) Voting rights often correspond to shareholdings, but this is not necessarily the case: for example, the articles of association may provide for multiple voting rights, or voting power may (partly) arise from agreements between the parties involved.
(c) Economic interest: An economic interest exists where a person (to a significant extent) shares in the financial returns, such as profit distributions or proceeds from sales.
(i) This can, for example, be achieved through certification. In such cases, a STAK usually exercises the voting rights attached to the shares, whilst certificate holders are entitled to the distributions. If a certificate holder holds certificates entitling them to more than 25% of the company’s economic interest, registration as a UBO on the basis of economic interest is the obvious course of action.
(d) Control on other grounds (de facto control): Sometimes a person has decisive influence without holding a formal shareholding or voting right of more than 25%. Consider situations where others systematically follow the lead of a single person, or where a single person effectively determines how votes are cast on the basis of a power of attorney or agreements. Such ‘de facto control’ may also lead to UBO registration. The basis for that control must be evident from the documents attached to the declaration, such as a voting agreement or (where appropriate) a directors’ report. To illustrate: if shareholders agree that one of them will vote on behalf of all and the other shareholders follow that vote, only that person may be identified as the UBO.
Pseudo-UBO
If no natural person can be identified who qualifies as a UBO on any of the grounds mentioned above, the statutory directors are declared as ‘senior managers’ (the so-called pseudo-UBO). Where a person qualifies as a UBO on multiple grounds, the most appropriate type of interest must be selected during registration in accordance with the order set out above.
Legal obligations and the UBO register
Since the UBO legislation came into force, virtually all legal entities established in the Netherlands are obliged to register their UBOs in the UBO register of the Chamber of Commerce. This applies not only to private limited companies (B.V.s) and public limited companies (N.V.s), but also to foundations, associations, partnerships, general partnerships and limited partnerships.
It is crucial to realise that the responsibility for providing accurate, complete and up-to-date information lies primarily with the company itself. This means that whenever there is a change in the ownership structure or management, it must be checked again whether the UBO registration still reflects the actual situation. In addition, institutions subject to the Wwft, such as banks, notaries and solicitors, have a duty to report. If they find that the information in the Commercial Register differs from their own findings, they are legally obliged to report this.
At European level, there has been discussion regarding the privacy aspects of the UBO register. A ruling by the Court of Justice of the European Union has led to public access to the register being restricted in order to safeguard the privacy of registered individuals. However, this does not affect the fact that the registration obligation for organisations remains in full force.
Consequences of non-compliance
Failure to register a UBO, or registering one late or incorrectly, is not taken lightly in the Netherlands. It is classified as an economic offence under the Economic Offences Act. Violation of this provision may lead to administrative sanctions, such as a penalty payment or a substantial administrative fine, but criminal prosecution is also a possibility.
In addition to the legal sanctions, the practical consequences for business operations are often even more far-reaching. Under the Wwft, banks and other financial service providers are obliged to establish the identity of their clients’ UBOs. If a company’s UBO registration is not in order, this may result in a bank, for example, refusing to open an account. This is a risk that no director should wish to run.
Practical tips for compliance
To manage risks, we advise business owners and compliance officers to take a structured approach to UBO identification:
1. First of all, map out the group’s entire legal structure, including any foreign entities that exert influence over the Dutch organisation.
2. Next, carefully document why a particular person is designated as a UBO or why the decision was made to register a pseudo-UBO. This justification is of great importance in the event of enquiries from the Chamber of Commerce or (financial) institutions.
In many cases, banks, notaries and solicitors will request supporting documents to confirm the designated UBO. So make sure you have these documents to hand!
Conclusion
UBO legislation is complex, and the actual situation does not always align seamlessly with the standard definitions in the law. Are you unsure whether you have identified the correct individuals, or are you dealing with a complex (international) structure? The specialists at Fruytier Lawyers in Business are ready to analyse your situation and guide you towards full compliance. Please feel free to contact us to minimise the risks for your business.
