The transparency register in practice – transparency obligations of selected associations and legal structures

The newly created provisions of the Anti-Money Laundering Act (GwG) concerning the introduction of the transparency register and transparency obligations and implementing the 4th European Money Laundering Directive (EU) 2015/849, still pose application problems for the associations and legal structures affected by them, even almost two years after their introduction.

This article is intended as a supplement to our earlier Insights article "Exceptions and legal fiction of notification". In addition to a deliberately brief and concise general presentation of transparency obligations, it also provides a brief overview of the transparency obligations of selected associations and legal entities (foundations, trustees, partnership companies, general partnerships, associations and unlisted stock corporations).

When presenting the transparency obligations applicable to these associations and legal structures, we assume in each case that there are no voting, pooling or syndicate agreements (Stimmbindungs-, Pool-, Konsortialvereinbarungen) between the shareholders or members that lead to voting rights etc. that deviate from the default legal model. In particular, we assume that no such agreement includes provision for voting to be conducted on a one-member-one-vote basis, nor on the basis of the value of an intermediate company or the capital share.

1.1 Transparency obligations

Legal persons governed by private law, registered commercial partnerships and trustees are subject to the transparency obligations pursuant to sec. 18 et seq. of the German Anti-Money Laundering Act (GwG). According to the provisions of the GwG, the aforementioned companies and administrators must notify their beneficial owners to the registrar for entry in the transparency register. The information to be provided includes the name, address, date of birth, place of residence of the beneficial owner and the nature and extent of the economic interest held by the beneficial owner.

1.2 The beneficial owner

Pursuant to sec. 3 para 1 GwG, beneficial owners are generally natural persons who own or control the company (No. 1) or persons who instigate transactions or a business relationship established (No. 2).

• In the case of legal entities (with the exception of foundations with legal capacity), pursuant to sec. 3 para 1, sentence 2; 2 GwG, the beneficial owners include in particular any natural person who directly or indirectly holds more than 25% of the capital share, controls more than 25% of the voting rights or exercises control in a comparable manner.
• In the case of foundations with legal capacity, legal entities with which assets are administered or distributed on a fiduciary basis, legal entities with which management or distribution is commissioned by third parties, and comparable legal forms, the following shall be considered beneficial owners pursuant to sec. 3 para 3 GwG:
  • natural persons acting as trustor, administrator of trusts (trustee) or protector,
  • natural persons who are a member of the board of the foundation,
  • natural persons designated as beneficiary,
  • groups of natural persons for the benefit of whom the assets are to be managed or in whose favour of whom the assets are to be managed, if the natural person who is to become the beneficiary of the assets managed has not yet been identified,
  • any natural person who otherwise has a direct or indirect controlling influence on asset management or income distribution.

1.3 Fiction of Notification

If the required information on the beneficial owners is already available from other electronically retrievable registers, such as the commercial register, the partnership register, the cooperative register or the register of associations, the so-called “fiction of notification” applies, according to which the obligation to disclose the beneficial owner is deemed to have been fulfilled.

In addition, in light of the far-reaching disclosure obligations of capital market law, there is a further fiction of notification for listed companies. Pursuant to sec. 20 para. 2, sentence 2 GWG, companies that are subject to obligations regarding transparency of shareholdings as defined in sec. 33 et seq. of the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) are de facto exempt from notification and disclosure obligations. However, this only applies to companies which are listed on an organised market in accordance with sec. 2, para 11WpHG or which are subject to transparency requirements under European Community law with regard to voting rights or equivalent international standards.

1.4 Transparency obligations of selected associations and legal structures

1.4.1 Foundations (Stiftungen)

Legal foundations under civil law, i.e. those recognised by the competent foundation authority of the respective Federal State (Bundesland), are subject to the transparency obligations of the GwG as legal persons under private law.

Since the information on the founder or the executive board cannot be obtained from the registers mentioned in the GwG, they do not benefit from the fiction of notification. The lists of foundations of the Federal States (Bundesländer) do not constitute electronically accessible registers within the meaning of the GwG. As a result, foundations with legal capacity must always notify their beneficial owners to the registrar for entry in the transparency register.

In contrast to foundations with legal capacity, foundations without legal capacity do not qualify as legal persons under private law. Non-legally capable foundations are therefore only covered by the transparency obligations of the GwG if, from the founder's point of view, the purpose of the foundation is self-interested. In this case they are similar in structure and function to trusts whose administrators (trustees) are subject to the transparency obligations of the GwG.

1.4.2 Partnership company (Partnerschaftsgesellschaft)

In partnership companies, members of the liberal professions (e.g. lawyers) join together to exercise their profession (sec. 1, para 1, sentence 1 PartGG). The partnership register records not only the name and seat of the partnership, but also the names of the partners together with their place of residence and occupation.

As registered partnerships, partnership companies are generally subject to transparency obligations, but they regularly benefit from the fiction of notification, provided that all partners are duly entered in the partnership register.

This is due to the fact that the position as partner and the associated possibility of influencing the partnership results from the partnership register, if the voting takes place according to the legal model (cf. sec. 6, para 3 PartGG in conjunction with sec 119 HGB, German Commercial Code). The legislator assumes that this applies to 95% of all partnerships (cf. BT Drs. 18/11555, p. 93).

1.4.3 General partnership (offene Handelsgesellschaft)

Due to their status as registered partnerships, general partnerships (oHG) are also subject to the transparency obligations of the GwG.

In the case of an oHG with up to three members, each member is generally to be regarded as the beneficial owner, since voting is generally carried out on a one-member-one-vote basis in accordance with sec. 119 para. 2 HGB and each shareholder thus holds more than 25% of the voting rights. If an oHG has more than 3 shareholders, a beneficial owner will not be identifiable, as the relevant percentage threshold of more than 25% is not reached.

In these cases, however, as the reporting fiction set out in sec. 3 para. 2, sentence 5 GwG applies, one then needs to consider the legal representative or the managing partners. In both cases, general partnerships benefit from the notification fiction, as the (fictitious) beneficial owner is regularly discernible from the commercial register, since the names, dates of birth and places of residence of the individual shareholders as well as their power of representation are entered into that register in addition to the general partnerships name, registered office and business address. The legislator itself assumes that about 90% of the general partnerships domiciled in Germany profit from the reporting fiction.

1.4.4 Trustee of a trust

A trust is a legal form derived from Anglo-American law in which assets become independent. The construct is mostly used to regulate succession and has certain similarities to a non-legally capable foundation with a selfish purpose. Nonetheless, the Federal Supreme Court considers the trust to be incompatible with the dogmatic principles of German law. A trust can therefore neither be established in Germany nor does it have legal capacity under German law.

Although trusts do not have legal capacity under German law and are therefore not themselves subject to transparency obligations, trustees resident in Germany are subject to the transparency obligations of the GwG. Trusts within the meaning of the GwG are legal arrangements established as a trust where the (foreign) law applicable to the establishment provides for the legal institution of a trust. Also included are legal institutions which are modelled on and try to replicate a trust, if the applicable law so provides.

Trustees are obliged to provide information on the beneficial owners of the trust or trusts they manage. In addition to the usual information (first and last name, date of birth, place of residence and type and scope of economic interest), they must also state the nationality of the beneficial owners.

The obligation to notify is unrestricted, as information about the beneficial owners is not contained in any of the relevant electronically retrievable registers and the fictional reporting can therefore not intervene.

1.4.5 Association (Verein)

The association with no legal capacity (nicht rechtsfähiger Verein) is neither a legal entity nor a registered partnership. It is therefore not subject to the transparency obligations of the GwG.

The legal situation is different for registered associations (e.V.) (eingetragene Vereine). These are covered by the GwG`s transparency obligations, as they qualify as legal persons under private law. When determining the beneficial owner, it must be taken into account that in an association the members do not hold any capital participation rights. The decisive factor in determining the beneficial owner of a registered association is therefore whether there is one (or more) natural person(s) who controls more than 25% of the voting rights.

This will be the case if the association has fewer than four members, since the affairs of the association are generally decided according to the legal ideal type of the regulation of sec. 32 para. 1, sentence 3 BGB (German Civil Code) by a majority decision in the general meeting. In this case, each member of the association, as the beneficial owner, must be disclosed to the body keeping the register for entry in the transparency register.

If, on the other hand, an association has more than four members, which should be the rule in light of the provisions of sec. 56, 73 BGB and also the assumption that the legislator makes in its explanatory memorandum, "control" based on association membership is ruled out. In these cases, the legal representative is regarded as the (fictitious) beneficial owner. In the case of a registered association, this is the board of directors. If the board members are duly entered in the electronically retrievable register of associations or companies, then in this case the fiction of registration takes effect for them with the consequence that nothing further has to be arranged.

1.4.6 Non-listed public limited companies (small public limited companies; nicht börsennotierte Aktiengesellschaften)

As legal entities under private law, stock corporations are generally subject to the transparency obligations of the GwG.

However, stock corporations listed on an organised market do not have to notify the registrar, as they are already subject to the more far-reaching disclosure obligations of capital market law and, therefore, under the provisions of the GwG, the obligation to notify the transparency register is always deemed to have been fulfilled (reporting fiction for listed stock corporations).

Non-listed public limited companies (small public limited companies), on the other hand, must as a rule notify their beneficial owners to the registrar for entry in the transparency register. In this case, neither the reporting fiction for listed stock corporations nor that of the public registers necessarily intervenes.

A notification can be omitted in those cases in which the shares of a non-listed stock corporation are completely free-floating and no other type of control can be exercised by one or more natural persons (for example on the basis of a voting rights agreement). In this configuration, the members of the executive board are regarded as (fictitious) beneficial owners and are identifiable from the commercial register. In addition, a notification to the Transparency Register is not necessary in cases in which the identity of a beneficial owner is – albeit indirectly – discernible from the notices in the company gazettes (Bekanntmachungen in den Gesellschaftsblättern), i.e. from an overall view of the registers, on the basis of a publication of a majority interest in a company (>25%) pursuant to sec. 20 para. 6 AktG. However, mandatory prerequisite is that the participating company (which has published its majority interest according to sec. 20 para 6 AktG) has fulfilled its transparency obligations in full.