Latviski English По-русски
Tuesday 21.01.2020 | Name days: Agne, Agnese, Agnija

Beneficial owner status in a company does not always involve receiving material benefits

(No Ratings Yet)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU

If a person is declared as a company’s beneficial owner, it does not always mean it is a person who is at the end of the chain and receives material benefits from companies.

Because it is a common assumption among members of society that the moment a person is registered in the Enterprise Register as an beneficial owner, this means he or she owns everything, BNN has decided to dive into requirements of Latvia’s legislation in regards to registration of actual beneficiaries and explain what this status actually means and how this term is misunderstood by society.

In Latvia there is no separation between beneficial owner and a person who has actual control over a legal entity and manager.

The Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing state that a beneficial owner is

a natural person who is the owner of the customer – legal person – or who controls the customer, or on whose behalf, for whose benefit or in whose interests business relationship is being established or an individual transaction is being executed, and it is at least:

regarding legal persons – a natural person who owns, in the form of direct or indirect shareholding, more than 25 per cent of the capital shares or voting stock of the legal person or who directly or indirectly controls it.

This law is based on European Union’s developed directive on declaration of beneficial owners. It is based on this legal framework that every country develops a law to govern registration and identification of beneficial owners in every country.

The confusion with requirements for declaration of beneficial owners lies in the fact that in Latvia a beneficial owner is someone often considered the direct or indirect owner of more than 25% of shares in a company, or a person who does not own anything but still exacts control over the company.

For example, in a situation when a single person has the rights to receive more than 25% of material benefits from a company and another person has the rights to use another shareholder’s voting rights in a company without receiving material benefits and still managing a company this way – both these persons in the eyes of Latvian law are considered beneficial owners. This is true even though one gains benefits thanks to being a shareholder, whereas the other does by controlling a company’s activities even though he or she is not a shareholder in it.

This is why, considering the line for registration as a beneficial owner is having more than 25% of shares in a company, the following situation is entirely possible: a company has four members – one owns 40% and the other three own 20% each. The three of them vote as they like, but their share amount, although considerable, does not exceed 25%. This is why they are not registered as beneficial owners. At the same time, the one who owns 40% may as well be in the minority when compared to other shareholders put together, because the shareholder’s 40% are not enough on their own to secure interests, and yet in the eyes of the law only this shareholder is registered as a beneficial owner.

Meanwhile, looking at the definition of a beneficial owner in Netherlands it becomes clear just how wide the definition is and how it should be interpreted. Dutch laws have two different definitions:

beneficial owner and pseudo beneficial owner.

This means this country has it set that it is primarily necessary to declare beneficial owners in the company they own shares in. If it is not possible to determine beneficial owners or there aren’t any, it is usually considered there are so-called pseudo beneficial owners, often the management of a company, but it is immediately clear that these pseudo persons are revealed to society as people who control the company, not ones who have a major interest in the company (shares).

Pseudo beneficial owners are managers, company boards involved in some company’s operations. These are employees with influence and control over some structure, but they do not have any participation interests. The structure is formed in such a way that a person has de jure control and, at the same time, the person does not receive material benefits.

Such structures are used in cases when a company owner passes a company to someone else as inheritance. To prevent heirs from «running everything into the ground», the initial owner hands the company to a professional management structure. Heirs remain inheritors of material benefits but do not have any control over the company. They are unable to make important managing decisions: dissolve the company’s board, make decisions that could potentially ruin the company, etc. Respectively the structure is formed in a way that a person retains material benefit reception rights but does not have control over the company. Such a structure is outlined in legislation in Netherlands. This means it is primarily important to declare economic beneficial owners. If a company has such owners it is not necessary to declare managers.

There would be less confusion in Latvia if the country’s laws also had a clear distinction between beneficial owners and pseudo beneficial owners, calling the first actual recipients of material benefits and the others – actual controllers or pseudo recipients of material benefits.

Theory in practice

To illustrate the theory detailed above, BNN decided to look into one of the most debated topics in relation to beneficial owners. There are many unclear aspects as to why Swiss lawyer Rudolf Meroni is declared in Latvia’s Enterprise Register as beneficial owner in companies in which Aivars Lembergs owns shares, which is why it is worth studying how the law functions in this specific case.

Lembergs’ rights as beneficial owner are currently under arrest. He is not able to give any instructions to Meroni, who is the holder of arrested property, as to what he should and should not do with the company. Under normal conditions Lembergs would have the rights to attempt to influence the holding’s structure, but he is not allowed to under the current circumstances.

As for the holder of arrested property Rudolf Meroni, for example in Ventbuners’s declaration submitted to the Enterprises Register it is stated that he is neither directly or indirectly a shareholder in Ventbinkers. However, he exacts control over the majority of Ventbunkers shareholder structure. This means in the eyes of Latvia’s law he meets the definition of a beneficial owner. He can be considered a beneficial owner based on the holding’s structure, its corporate posts and decisions made in relation to the arrest. Respectively, Meroni can be considered a beneficial owner of Ventbunkers, Kālija parks, Ventspils Commercial Port because he is in charge of these companies even though he is neither a direct or indirect shareholder.

Any beneficial owner status in a company does not automatically mean status of a co-owner in a company. In the eyes of Latvia’s law, a beneficial owner can be someone who is not the owner of a company but is only in control of it.

Leave a reply

Minister: Rebenoks is one of the winners of Latvenergo council members selection process

The decision regarding approval of the new Latvenergo council, to which is planned to delegate Latvian Economy Minister Ralfs Nemiro’s advisor Pāvels Rebenoks, could be made by Economy Ministry’s state secretary, said Nemiro.

Railway freight volumes in Latvia drop 15.8% in 2019

When compared to 2018, railway freight volumes in Latvia had declined 15.8% in 2019. Total railway freight volumes reached 41.492 million tonnes, according to data from the Transport Ministry.

UN: Illegal for countries to send back climate refugees

UN Human Rights Committee has found that it is illegal for countries to send refugees to their home countries if their lives or welbeing is in danger at home.

18 589 thousand children born and 12 913 marriages signed in Latvia in 2019

In Latvia, birth number has been declining for four years in a row. 18 589 births were registered in 2019, which is 725 births fewer than in 2018.

Kaimiņš invites KPV LV to decide on party’s liquidation during congress

KPV LV does more bad than good for the country now and is beyond saving, said the party’s founder, Saeima deputy Artuss Kaimiņš in an interview to Latvijas Radio, inviting members of the party to decide on its liquidation at the upcoming congress.

Krūmiņš and Raitums receive fines for illegal financing of ZZS and For Latvia from the Heart

At the end of 2019 Businessman Jūlijs Krūmiņš and financial consultant associated with him Jorens Raitums both agreed to pay EUR 100 000 fine for using third parties to gather money for the Union of Greens and Farmers and For Latvia from the Heart, as reported by TV3 programme Nekā personīga.

Estonian producer price index decreased in 2019

Estonia’s producer price index of industrial output decreased from December 2018 to December 2019 by 1.2%, the country’s official statistical body Statistics Estonia estimated.

Justice Minister: Bičkovičs might pick prosecutor general candidate before amendments

Ivars Bičkovičs, chairman of the Supreme Court of Latvia, may be able to perform some manoeuvres to pick the most appropriate candidate for the post of prosecutor general before amendments aimed at changing the order candidates for the aforementioned position are picked come to force, said Latvian Justice Minister Jānis Bordāns in an interview to newspaper Latvijas Avīze.

Estonian minister stresses immigration’s dominance in population growth

In Estonia, where statistics expect the 2019 to have been the fifth consecutive year of population growth, the Population Affairs Minister has pointed to current foreign immigration rate exceeding the country’s aim of foreign immigration.

Programme: minister wants state secretary gone over an objection

Prior to major changes in Latvenergo’s council and board, the company’s current supervisor and Economy Ministry’s state secretary Ēriks Eglītis may lose his post. It is worth mentioning that he objected to providing Economy Minister Ralfs Nemiro’s once boss Pāvels Rebenoks an official post, as reported by TV3 programme Nekā personīga.

UK’s Prince Harry steps down from royal duties after funding row

United Kingdom’s Prince Harry has announced the resignation of him and his wife Meghan from their royal duties after they did not succeed in being allowed to continue to serve without public funding. Prince Harry and Meghan have agreed to no longer formally represent the British Queen.

National Alliance wants pre-election promotion carried out only in state language in Latvia

On Monday, 20 January, at the meeting of the Coalition Council the National Alliance «All for Latvia-For Fatherland/LNNK» will ask participated in the meeting to discuss amendments to the Pre-election Campaign Law that propose limiting pre-election promotion to state language only.

Libya peace talks in Berlin seek to stop foreign involvement in war

A peace conference on Libya has been held in Berlin, where 11 countries have undertaken to respect an arms embargo and called for a lasting peace in the North African country between its two competing governments.

Weather in Latvia to be volatile this week; nights to be chilly on some days

This week’s weather is expected to be volatile in Latvia – the sky will be covered with clouds on some days and clear on others, some precipitation and strong wind is also expected. This week also air temperature will mostly stay at above 0° C.

Week in Lithuania: police on hunt of a child’s kidnapper, 2020 conscription list announced, Belarus seeks Lithuania’s help

In Lithuania, the top news stories last week were the police hunt of a child’s kidnapper, the announcement of the 2020 conscription list and Belarus seeking Lithuania’s help court.

BNN summary of the week: Lay-offs at LDz. KNAB wrapped around ZZS’ finger. Ķuzis steps down

The last week demonstrated that not everything that glitters is gold. Although previously Latvian Railway proudly reported growing freights and revenue, the statement released in the middle of the week suggests the company is not in the best state – the company plans to lay off 1 500 workers by the end of the year.

FKTK lists exceptions in which banks are allowed to service Aivars Lembergs

Latvian Finance and Capital Market Commission has listed cases in which Latvia’s finance market participants will be allowed to service Aivars Lembergs, who is subjected to US OFAC sanctions and accused of serious crimes, and three organizations associated with him – Ventspils Development Agency, Business Development Association and Latvian Transit Business Association.

Appropriate jobs promised for laid-off LDz workers

Latvian State Employment Agency promises to find appropriate jobs for laid-off Latvian Railway workers. If need be, those people will be provided the opportunity for re-qualification, raise their qualification or train for a new profession, as confirmed by the agency’s representative Signe Bierande.

Bordāns selects potential candidates to lead the Supreme Court and Prosecutor General’s office

I can see people who could take the reins over the Office of the Prosecutor General and the Supreme Court and change their work standards, Latvian Justice Minister Jānis Bordāns told TV3 programme 900 seconds when asked about any potential candidates to lead those institutions.

Ukrainian Prime Minister ready quit after leaked voice recording

Ukrainian head of government Oleksiy Honcharuk has offered to resign following the circulation of an audio recording, where criticism of Ukrainian President Volodymyr Zelenskiy and his knowledge in economy is voiced.

Inflation in Latvia reportedly higher than Europe’s and Eurozone’s in December

In December 2019 inflation in Latvia was higher than the average in the European Union and Eurozone, according to information published by Eurostat on Friday, 17 January.

Estonian population growth continues in 2019 due to immigration

Estonia has registered in 2019 population growth for the fifth consecutive year and it can be explained with immigration not with natural growth, according to preliminary data released by Statistics Estonia.

BNN investigation | Raunas street property: quiet assistant with a «secret wallet» for Lembergs

There are suspicions that Aivars Lembergs, subjected to international sanctions, has sold real estate located on Raunas Street 27 in Riga to his sister «on paper only». This may have been done to avoid confiscation of properties in the event of a guilty verdict or a possible arrest over the real estate property. However, it is possible Lembergs maintains full control over this real estate property and, most likely, the property is used to fatten his wallet on a regular basis.

Audit: majority of Latvian housing stock has degraded to a state of a slum

Since the denationalization effective access to housing security in Latvia does not exist and most of the housing stock has degraded up to a state of a slum, as concluded by the Latvian State Audit.

Prime minister affirms possibility of carrying oil supplies for Belarus through Latvia

During his meeting with Belarusian President Aleksandr Lukashenko on Thursday, 16 January, Latvian Prime Minister Krišjānis Kariņš affirmed that oil supplies for Belarus may be possible using Latvia’s ports.

Do NOT follow this link or you will be banned from the site!