Acting in concert and acting in concert with others are important legal concepts throughout the process of identifying and verifying the beneficial owner (hereinafter “BO”) of a specific entity (in our case, the identification of the beneficial owner of a public sector partner by an authorized person) within the meaning of Act No. 315/2016 Coll. on the Register of Public Sector Partners and on Amendments to Certain Acts (hereinafter also referred to as the “Register Act”), but particularly when assessing whether a specific natural person is or is not the UBO of a public sector partner based on facts other than those clearly identifiable through due diligence.
However, neither of these concepts is entirely clear to the general public, or even to legal professionals. Their interpretation and practical application often cause significant complications or misunderstandings. At the same time, both are frequently the subject of legal debate. It is precisely for this reason that the purpose of our article is to clarify these concepts in greater detail so that the public can better understand them, assess them, and apply them to the specific conduct of the entity in question.
The definition of the term “KUV” and the criteria establishing the status of a specific entity—a public sector partner—as a KUV are not directly contained in the Registry Act, but are regulated in a separate statute, namely Act No. 297/2008 Coll. on the Prevention of Money Laundering and the Financing of Terrorism and on Amendments to Certain Acts, as amended (hereinafter the “AML Act”).
Pursuant to Section 6a of the AML Act, cit.:
“(1) The beneficial owner is any natural person who actually controls or exercises control over a legal entity, a natural person—entrepreneur, or an asset pool, and any natural person for whose benefit these entities conduct their activities or business; beneficial owners include, in particular,
a) in the case of a legal entity that is neither an asset pool nor an issuer of securities admitted to trading on a regulated market subject to disclosure requirements under a special regulation, equivalent legislation of a Member State of the European Union or another state that is a party to the Agreement on the European Economic Area (hereinafter referred to as a “Member State”) or equivalent international standards, a natural person who
1. holds a direct or indirect interest, or a combination thereof, of at least 25% of the voting rights in a legal entity or of its share capital, including bearer shares,
2. has the right to appoint, otherwise designate, or dismiss the statutory body, management body, supervisory body, or audit body of the legal entity or any member thereof,
3. controls the legal entity in a manner other than that specified in the first and second points,
4. has the right to at least 25% of the economic benefit from the legal entity’s business or other activities,
b) in the case of a natural person—entrepreneur, a natural person who is entitled to at least 25% of the economic benefit from the business of the natural person—entrepreneur or from any other activity thereof,
c) in the case of an asset association, a natural person who
1. is the founder or establisher of the asset association; if the founder or establisher is a legal entity, the natural person referred to in subparagraph (a),
2. has the right to appoint, otherwise designate, or remove the statutory body, management body, supervisory body, or audit body of the asset pool or a member thereof, or is a member of a body that has the right to appoint, otherwise designate, or remove such bodies or their members,
3. is a statutory body, management body, supervisory body, control body, or a member of such bodies,
4. is the recipient of at least 25% of the funds provided by the asset association, if the future recipients of these funds have been designated; if future beneficiaries of the assets of the association have not been designated, the group of persons who derive significant benefit from the establishment or operation of the association shall be considered the ultimate beneficial owners.
(2) If no natural person meets the criteria set forth in paragraph 1(a), the members of that person’s senior management shall be considered the beneficial owners; a statutory body or members of a statutory body shall be considered a member of senior management.
(3) A beneficial owner is also a natural person who does not personally meet the criteria under paragraph 1(a), b) or subparagraph (c) of the second and fourth points, but who, together with another person acting in concert or in a joint arrangement with them, meets at least some of these criteria.”
Pursuant to the aforementioned provision of Section 6a(3) of the AML Act, a natural person who does not individually meet the criteria under paragraph 1(a), b) or c) of the second and fourth points of the cited Section 6a of the AML Act, but who, together with another person acting in concert with them or in a joint arrangement, meets at least some of these criteria.
An authorized person, in the process of identifying a KUV as well as in the process of verifying the identification of a public sector partner’s KUV, is thus required to examine and assess whether there is any other natural person (other than persons identified under Section 6a(1) and (2) of the AML Act) who, on their own, does not meet the definitional criteria for identifying a KUV (e.g., holds less than 25% of the voting rights), but by acting in concert or through joint action with another person meets at least some of the criteria for identifying a KUV.
Acting in concert may be considered to be conduct as defined under Section 66b of Act No. 513/1991 Coll. Commercial Code (hereinafter also referred to as the “Commercial Code”), which defines it as conduct aimed at achieving the same objective carried out between:
- a legal entity and its partners or members, the statutory body, members of the statutory body, members of the supervisory body, employees of the legal entity who are under the direct management authority of the statutory body or a member thereof, a proxy, the liquidator, the bankruptcy trustee, the settlement administrator of such legal entity, and persons closely related to them, or between any of the aforementioned persons,
- persons who have entered into an agreement on the joint exercise of voting rights in a single company in matters relating to its management,
- a controlling person and a controlled person, or between persons controlled directly or indirectly by the same controlling person.
With regard to the identification of a KUV at a public sector partner in connection with the provision of Section 66b(a) of the Commercial Code, this refers to the relationship between the partners of a commercial company who have entered into a partnership agreement as provided for in Section 66c of the Commercial Code. In this case, therefore, this refers to any written agreements among the company’s partners establishing the manner and conditions for exercising rights associated with participation in the company, the manner of exercising rights related to the administration and management of the company, the conditions and scope of participation in changes to the share capital, and ancillary agreements related to the transfer of a share in the company (e.g., rights and obligations in the event of a joint sale—the so-called “TAG-ALONG RIGHT”). Since this is an illustrative list, the subject matter of such agreements may also include other rights and obligations of the shareholders arising from their participation in the company, provided that they do not conflict with the legal order or public policy. However, the relevant provisions in the shareholders’ agreement must always constitute actions aimed at achieving the same objective; the agreement alone, without fulfilling this condition, does not constitute acting in concert. The above point does not apply to the exercise of voting rights under Section 66b(b) of the Commercial Code.
With regard to the identification of KUV in a public sector partner in connection with the provision of Section 66b(b) of the Commercial Code, this concerns a relationship between partners in a commercial company who have entered into a written partnership agreement regarding the concerted exercise of voting rights with a public sector partner. Because the legislature has specifically regulated the exercise of voting rights in this provision, it follows that the relationship alone (e.g., the partners’ equity interest in the controlling company of the public sector partner) between the persons exhaustively listed in subparagraph (a) does not constitute acting in concert. For acting in concert, other statutory conditions required by law must always be met as well.
With regard to the identification of a controlled entity (KUV) of a public sector partner in connection with the provision of Section 66b(c) of the Commercial Code, the aforementioned point is inapplicable. It is assumed that a controlled entity within the meaning of this point would be a public sector partner, and therefore the point in question is irrelevant.
Concerted action must therefore always be understood as action that unambiguously and unequivocally aims to achieve the same objective on the basis of a written agreement, and always between the entities exhaustively listed in the statutory provisions.
Joint action is defined in accordance with the Public Procurement Office’s Interpretative Opinion No. 1/2016 as the conduct of natural persons who, although they do not individually meet the criteria for determining the ultimate beneficiary under Section 6a( 1 of Act No. 297/2008 Coll., but on the basis of, for example, an agreement or contract on joint action, these two or more persons have a common position in business, management, or control of a legal entity or a natural person (entrepreneur) to the extent that a natural person who meets the criteria for a beneficial owner set forth in Section 6a(1) (See Explanatory Memorandum to Act No. 241/2019 Coll.)
Such joint action by two or more natural persons has the same effect as if it were a single natural person who is the beneficial owner pursuant to Section 6a(1) of the AML Act. This situation arises, for example, when six natural persons who individually do not meet the criteria for a beneficial owner set forth in Section 6a(1) of the AML Act, but provided there is an agreement on their joint action, exercise their voting rights in that legal entity in the agreed manner, and the total share of these six natural persons (the sum of all their direct or indirect shares) in the voting rights of the legal entity in question is at least 25%. The public sector partner shall therefore also enter these six natural persons into the public sector register. However, unlike the aforementioned interpretive opinion, the number of these jointly acting persons is not limited to 10; thus, there may be more than 10 jointly acting persons. Joint action would occur, for example, in cases where one person represents multiple individuals; however, the mere participation of individuals in a single company that controls the public sector partner as a controlling entity does not automatically constitute such joint action. Such an interpretation would contradict the purpose of examining the structure of a public sector partner and would also cause several application problems. This also follows from the fact that the Commercial Code, for example in Section 186a, prohibits agreements “by which a shareholder undertakes to the company or any of its bodies, or a member of its bodies to follow, when voting, the instructions of the company or one of its bodies regarding how to vote, to vote in favor of proposals submitted by the company’s bodies, or to exercise voting rights in a specific manner, or to abstain from voting in exchange for benefits provided by the company.” The exercise of the rights of a partner or shareholder is independent unless there is another agreement on joint action by the persons concerned, or it involves another form of equity interest from which economic benefit flows, such as a standard commercial company (e.g., a trust fund under Sections 1448–1474 of the Czech Civil Code).
Joint action will occur in particular in the case of the representation of multiple partners or shareholders based on a joint agreement, or in the form of a permanent power of attorney, from which joint action results (for example, a special-purpose company established for the purpose of joint investment where an agreement exists regarding the representation of the persons concerned, so-called crowdfunding; also, for example, a power of attorney agreement under which multiple persons are jointly represented by a single person). Joint action also occurs in cases of joint ownership of a business share (we understand the term “joint ownership of a business share” to mean a business share owned by multiple natural and legal persons. In this case, the business share cannot be divided. Each co-owner of a joint business share participates in the exercise of the rights and obligations to which they are entitled in proportion to the size of their share in the company).
Joint action must therefore always be understood as action where the unambiguous and indisputable joint exercise of rights by multiple entities is documented in a verifiable form, through one or more persons, provided that the joint exercise of rights by multiple entities is of a permanent nature.
