July 24, 2017
As of August 1st, 2017, companies newly created in France will need to declare the identity of their beneficial owners. For existing companies, the same information will have to be provided prior to April 1st, 2018.
These new rules derive from the Directive (EU) 2015/849 of May 20, 2015 which has already been implemented in several EU countries, such as the UK with the creation in 2016 of the People with Significant Control Register (see Gibson Dunn’s Client Alert in this regard at http://www.gibsondunn.com/publications/Pages/The-People-with-Significant-Control-Register.aspx).
The new French rules are provided for in Decree No. 2017-1094 dated June 12, 2017 (published on June 14 – the "Decree").
The new rules apply to non-listed companies incorporated in France. They also apply to commercial companies headquartered outside of France but having an establishment in France subject to registration.
The legal entities falling within the scope of the new duty must obtain the required information on their beneficial owner(s), disclose the information, keep the information up-to-date, monitor any change and update, as appropriate, any disclosure made.
The beneficial owner of a company is usually understood as the individual(s) who own(s) directly or indirectly more than 25% of the share capital or voting rights of the company, or exercise, by any other means, a supervisory power over managing, administrative or executive bodies of the company or over the general meeting of the shareholders. The Decree is unclear as to how to compute indirect control rights. For example, in the case of Mr. X owning 100% of the share capital of company A, itself owning 60% of company B which owns 30% of company C, is Mr. X the beneficial owner of company C or should Mr. X be treated as having a (100% X 60% X 30%) 18% interest in company C? Prudence would recommend considering Mr. X as a beneficial owner of Company C but the issue is debated.
Also, one may wisely integrate the fact that the 25% threshold derives from the Directive (EU) 2015/849 of May 20, 2015 and that the EU Commission is working on a new version of the Directive contemplating a 10% threshold.
The CEO of the legal entity subject to the new rules shall file with the clerk of the Commercial Tribunal where the company is registered a document to be attached to the Trade and Companies Register (Registre du commerce et des sociétés), identifying its individual beneficial owner(s).
The document filed shall specify the following information:
The date on which the individual became a beneficial owner must also be provided.
It is unclear what is meant by the "terms and conditions" [modalités] under which the control is exercised". One can hope that the registrars of the local Commercial Tribunal will exercise proper restraint in their requests for information in this regard. Also, one will need to be cautious regarding the description of the "control" over the entity, in order to remain in strict compliance with corporate rules.
Any change making the disclosed information inaccurate or incomplete must be filed within 30 days.
The Decree provides for a long list of the individuals holding specific offices who are expressly authorized to have access to the information related to the beneficial owner of a legal entity. As a matter of illustration, judges of the ordinary courts (ordre judiciaire), tax services, customs authorities, French regulators such as the Autorité des marchés financiers (stock exchange watchdog), the Autorité de contrôle prudentiel et de résolution (prudential supervision authority) or Tracfin (anti money laundering authority) have access to the Register for the purpose of their mission.
In addition, however, it is possible for any person to be authorized to have access to the information by making a request before the specific judge assigned to the monitoring of the register. The request must be justified but the standard of appreciation of the justification to be provided is unclear.
Also, it must be remembered that the updated version of the EU Directive of May 20, 2015 that the EU Commission is working on provides for a general right of access to the information relating to beneficial owners.
The President of the relevant Commercial Tribunal can order any legal entity under the Tribunal’s jurisdiction to file information related to the beneficial owner(s). The order can be accompanied by a daily fine (astreinte) payable until fulfillment of the disclosure obligation. A fine of up to €7,500 may also be imposed in case of breach of the new rules as well as a sentence of up to six months in prison.
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As a result of such new rules, agreements such as fiduciary, trust or nominee agreements entered into with respect to shares of non-listed French companies will have to be analyzed in order to identify the beneficial owner of such contractual arrangements. It will be a significant blow to the confidentiality principle usually applicable to such agreements. Companies and legal entities subject to these new disclosure rules should assess their disclosure requirements and contemplate implementing monitoring procedures of their direct and indirect shareholding in order to remain current in their disclosure obligations.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors in the firm’s Paris office, by phone (+33 1 56 43 13 00) or by email (see below):
Jean-Philippe Robé (firstname.lastname@example.org)
Judith Raoul-Bardy (email@example.com)
Jérôme Delaurière (firstname.lastname@example.org)
Ariel Harroch (email@example.com)
Manon Lafond (firstname.lastname@example.org)
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