Inaccurate shareholder data - a fine or even criminal liability?
While it may seem that formal registers are just "paperwork", it is worth remembering that mistakes or delays in submitting shareholder data to JADIS (the Information System of Legal Entities Participants) can cost money and have far more serious legal consequences.
According to the Companies Act, as soon as a private limited liability company is established or its shareholders change, all relevant information on the shareholders must be submitted to JADIS within 5 working days: their details, the number of shares, the date of acquisition etc.
Although the manager may delegate this responsibility to another person, the responsibility remains with the manager. This means that if data is not provided, is provided late or is incorrect, it is the manager who is responsible.
Domantas Velykis, a lawyer at AVOCAD, explains what legal liability may be imposed on the head of a company for failure to provide shareholder data of a private limited liability company, late provision of data, or provision of incorrect data .
According to the lawyer, in a standard case, a company manager who violates the obligation or procedure for submitting shareholder data to the JADIS is subject to an administrative penalty of between six hundred and one thousand four hundred and fifty euros, i.e. administrative liability.
The legal basis for this penalty is established in the Code of Administrative Offences, which stipulates that, firstly, the submission of incorrect data of a legal entity and other information to be provided to the data manager of the Register of Legal Entities, the information system manager of participants of legal entities, and secondly, the failure to provide data of a legal entity and other information to be provided to the data manager of the Register of Legal Entities, the information system manager of participants of legal entities in due time according to the procedure provided for by the legal acts, shall entail the aforementioned administrative liability for the head of the legal entity.
Given the similarities between administrative liability and criminal liability, a reasonable question arises - can the head of a company be held criminally liable for failure to provide shareholder data, late provision of data, or provision of incorrect data?
Domantas Velykis reminds that the Supreme Court of Lithuania has heard a case in which a question was raised about the possibility of applying two criminal offences for false information of shareholders in the public register, when the head of the company, being the sole shareholder and head of the company, sold 50 shares of the company to another person by a share sale and purchase agreement in 2014, but in 2017 the head of the company submitted an application to the Centre for Registers to register himself as the sole shareholder of the company, falsely stating that he had acquired the entire number of shares in 2016, when in fact he had not recovered the shares from another person.
First of all, the Supreme Court of Lithuania found that the Share Purchase and Sale Agreement concluded in 2014 was valid - it was neither annulled nor declared invalid. Therefore, the Court assessed whether the company's CEO could have committed a crime by submitting an application to the Centre of Registers to register himself as the sole shareholder, i.e. whether he had illegally acquired someone else's property, in this case, 50 shares which were already owned by another person.
In this situation, the lawyer said, it is important to know that company shares can only be transferred after a certain transaction (for example, a sale or a gift) has been concluded and an entry has been made in the securities accounts. In contrast, the JADIS is only an information system that registers changes in shareholders that have already taken place, but the entry in it does not in itself create ownership rights.
"Therefore, a manager's mere request to register himself as the sole shareholder does not guarantee that he has legally acquired those shares. As such entries do not reflect a real transaction, the court concluded that this action cannot be considered fraud - the manager did not actually acquire shares or rights related to them that do not belong to him," says Domantas Velykis, lawyer at AVOCAD.
Secondly, the issue was whether the company's director, by submitting an application to the Centre of Registers to register himself as the sole shareholder and by providing false information, could be considered as the creator or user of a forged document - in other words, whether his actions fall within the offence of forgery of a document.
In assessing whether such an act is genuinely dangerous, it is important to take into account whether the provision of false information has led to real legal consequences - whether the rights or interests of others have been violated.
The Supreme Court of Lithuania noted that in this case only a formal situation had been created which gave the impression that the CEO was the sole shareholder. However, such an entry is not sufficient on its own - it did not produce any real effects. Although, in theory, such information could have been used, for example, in transactions with third parties, there was no evidence that the manager intended to harm or actually took advantage of it.
In conclusion, the court concluded that although the manager's application to the Centre of Registers contained incorrect information, it was not sufficiently dangerous or harmful to give rise to criminal liability. His actions did not cause real damage to other persons or to the legal system and did not therefore amount to falsification of a document.
Thus, when inaccurate shareholder data is entered in JADIS, the most common administrative liability is a fine of between €600 and €1,450. Meanwhile, criminal liability can only be imposed in exceptional cases where it is clear that the director has deliberately provided incorrect data and has used it to his advantage, for example, to enter into transactions or to deceive others.