On November 25, 2014 the Law of Ukraine "On amendments to some legislative acts of Ukraine concerning the definition of final beneficiaries of legal persons and public figures" №1701-VII (hereinafter - "the Law") came into force. It was designed to ensure the transparency of business and to help fight corruption. In order to accomplish that this Law, among other things, forces all legal entities in Ukraine to reveal their real owners, including "final beneficiaries", as well as all “shadow” owners with "substantial participation" in such entity.

According to the Law the final beneficiary is an individual, who, regardless of formal ownership is able to exercise a decisive influence over the management or operations of the company, directly or through other related persons. "Decisive influence" has a pretty wide interpretation and, in particular, includes the direct or joint related party ownership of 25% or more of the authorized capital of the company or of the voting rights. The Law does not regard agents, nominal owners and other intermediaries as final beneficiaries.

Those with "material participation" are classified by the Law as individuals - members of legal entities that control the activities of companies, through direct or indirect ownership of 10% or more of the charter capital or voting rights.

The above information must be submitted to the state registrar within six months, starting from November 25, 2014. However, to our knowledge, state registry software has not been developed as of yet, the format of the record hasn’t been approved either and the state registrars themselves do not have a complete understanding what is it that they are supposed to do and how, since there are no detailed instructions on how this information should be filed.  

But even after these technical problems shall be solved, for many companies, the question remains, what information they should actually disclose. This is a burning issue first and for most for the executives and in-house lawyers of companies that:

a)    have a complex structure of ownership and are controlled by a number of companies, which in turn are controlled by several other companies and do not incorporate individual participants;

b)    are controlled by several persons, each of which meets all the formal criteria of the final beneficiary;

c)    are controlled by a number of individuals, none of whom formally comply with the criteria of the final beneficiary;

d)    are controlled by public companies whose shares are publicly traded on a stock exchange, or by trust companies, the actual owner of which is hidden.

No official clarification from the regulators on these and similar questions have been issued yet. It is most likely that in cases of the complex corporate structure of the business the search for the final beneficiary must continue until a natural person who has a decisive influence on the company by means of intermediate entities has been identified. In addition, we assume that the information on all persons formally falling under the criteria of the final beneficiary and persons holding "substantial participation" would need to be disclosed. But state regulators may come up with a different explanation as regards to the format and the scope of providing the requested information.

The current version of the Law stipulates that the registration of the above mentioned data shall be purely declaratory, it does not ask for supporting documents to be submitted by companies. Nevertheless, the management should in fact have these documents handy since the Law holds it responsible (both administrative and criminal liability) for false or incomplete data. Possible sanctions include penalties in the amount of 34 000,00 hryvna, up to 6 months under arrest or supervised release for a term of up to 5 years with no right to occupy the appropriate positions for up to 3 years. Therefore, we advise to start looking for these answers and get ready to comply with this Law immediately.