Since August, 1rst 2017, Article 561-46 of the French Monetary and Financial Code provides that unlisted companies have to hold a register of beneficial owners and give a copy of it to the Trade and Companies Register (Please find an article written in French on this topic on Delcade’s website, published on July, 28 2017 and entitled “obligation pour les sociétés non cotées d’identifier leurs beneficiaries effectifs”).
After the presentation of the definition of beneficial owners (1), this article will present the question of the application to unlisted companies controlled by a listed company (2), the question of the appreciation of the 25% share capital indirect holding (3), and the question of the designation of a default beneficial owner in case the identification is impossible (4). Finally, this article will address different situations linked to the shares’ property, that are the undivided co-ownership (5), the dismember of ownership (6) and the rent of shares (7).
- 1. Definition of “beneficial owners”
Since there is no definition in the Government Regulation 2016-1635, it is the definition provided by the article R 561-1 of the French Monetary and Financial Code (FMC) that has to be applied: natural person who either own directly or indirectly more than 25% of the share capital or of the voting rights, or carry out, by any other way, a control power over the corporate management, administrative or executive body or over the shareholders’ general meeting.
On this point, please note that a decree is expected in November to define the notion of “beneficial owners” in the sense of this new declaration obligation.
- 2. Application to unlisted companies controlled by a listed company
Even if listed companies are not submitted to this identification obligation, it nevertheless applies for unlisted companies that are controlled by a listed company. Indeed, the rationale behind this obligation is precisely to identify the natural person which controls the unlisted company, even through a listed company. As proof, the article 561-46 of the FMC does not provide any exception and does not allow in this case declaring the listed company as beneficiaries.
- 3. Appreciation of the 25% share capital indirect holding
No appreciation’s rule is provided by the Government Regulation. However, it exists two methods in order to appreciate the 25% share capital indirect holding.
(i) Application of the rule provided by article L 233-4 of the French commercial code.
According to this article L 233-4, any shareholding held by a company controlled by another company is considered as being indirectly held by this latter.
Applied to a natural person, this method allows to consider that a natural person holds indirectly a shareholding in a company when this shareholding appears in the securities portfolio of another company in which the natural person holds the majority of voting rights or in which it determine in fact the general meetings’ decisions or in which it has the power to nominate or revoke the majority of the executive, administrative or supervisory body’s members.
(ii) Financial criteria
This method consists in multiplying the shareholdings.
Natural person’s shareholding in B through A : 40% X 70% = 28%
As a consequence, the natural person is considered as Company B’s beneficial owner.
- 4. The designation of a default beneficial owner
In case of impossibility to determine the beneficial owners’ identify in view of the shareholding opacity (for instance in case of series of shell companies), it seems possible to declare the natural person(s) occupying the “principal director” position as beneficial owner by the application of the European Anti Money-Laundering Directive. However, this should be a last solution if, after having exhausted all possible means, the company is still not able to identify the beneficial owner.
- 5. Undivided co-ownership
It seems that each undivided co-owner has to be declared as beneficial owner with a specific mention related to its quality of co-ownership member.
Furthermore, if a proxy invested with a general administrative mandate on the shares is designated by the co-owners, it has to be considered has beneficial owner if its mandate allows it to exercise a control power over the corporate management, administrative or executive body or over the shareholders’ general meeting.
- 6. Dismember of ownership
In case the shares representing more than 25% of the share capital or voting rights are dismembered between a bare owner and a usufructuary, both of them have to be declared as beneficial owner.
- 7. Rent of shares
Both the lessor and the tenant have to be declared as beneficial owner.
Disclaimer : These are examples only and should not held our law firm liable for the actions you take upon the information contained in this article. Indeed, this article is made available for information purposes only in order to give you a general understanding of the law, not to provide legal advice.
Bulletin Rapide de Droit des Affaires” (“BRDA”), November,2 2017.