What is Beneficial Ownership?

If you own a property, a bank account, or a share of a company, you might think that your name is on the official records as the owner. But in some cases, you might be the beneficial owner, meaning that you enjoy the benefits of ownership even though the title is in another name.

This can happen for various reasons, such as convenience, safety, or anonymity. But what does beneficial ownership mean, and how is it regulated? In this blog post, we will explore these questions and more.

A beneficial owner is:

• A person who enjoys the benefits of ownership even though the title to some form of property is in another name.
• Any individual or group of individuals who, either directly or indirectly, has the power to vote or influence the transaction decisions regarding a specific security, such as shares in a company.

Beneficial ownership is different from legal ownership, which is the formal right to control or dispose of a property. In most cases, the legal and beneficial owners are one and the same, but there are some exceptions.

For example, when purchasing shares of a mutual fund or a publicly traded company, you may not physically possess the certificates. Instead, a custodian bank or broker may hold them in street name for safety and convenience. Nevertheless, you still maintain beneficial ownership of those shares, entitling you to receive dividends, participate in voting on corporate matters, and sell them at your discretion.

Another example is if you put your assets in a trust for estate planning or tax purposes. The trust is the legal owner of those assets, but you are still the beneficial owner as long as you have access to them or can direct how they are used.

Why Is Beneficial Ownership Important?

Beneficial ownership is important for several reasons. First, it affects how you are taxed on your income and capital gains from your assets. Depending on your jurisdiction and the type of asset, you might have to report your beneficial ownership to the tax authorities and pay taxes accordingly.

Secondly, financial authorities regulate you based on how you are affected. Financial regulations, such as the Corporate Transparency Act in the US, define a beneficial owner as anyone holding a stake of 25% or more in a legal entity or corporation. Individuals with a significant role in the management or direction of these entities, as well as trusts owning 25% or more of an entity, can also be considered beneficial owners.

The purpose of these regulations is to combat money laundering, tax evasion, fraud, corruption, and other illicit activities facilitated by concealing the true identity of owners behind shell companies or nominees. Consequently, financial institutions must verify the beneficial owners of their customers and promptly report any suspicious transactions to the authorities.

How Can You Find Out Who Is the Beneficial Owner?

Finding out who is the beneficial owner of a property can be challenging, especially if there are multiple layers of ownership or intermediaries involved. However, there are some sources of information that can help you:

Public Registries

Some jurisdictions have public registries that show the names of the owners of properties, such as real estate or securities. For example, in most countries, you can access the land registry to find out who owns a piece of land. Similarly, you can access the securities registry to find out who owns shares of a company.

Corporate Filings

Some jurisdictions require companies and other legal entities to disclose their beneficial owners. Disclosure happens in their annual reports or other filings with the regulators. For example, in the US, companies that issue securities must file Schedule 13D with the Securities and Exchange Commission (SEC). If a company has more than 5% beneficial ownership of another company, this requirement triggers.

Beneficial ownership databases

Some jurisdictions have created databases that collect and publish information on beneficial owners from various sources. For example, FinCEN (the Financial Crimes Enforcement Network) in the US has launched a website where companies can report their beneficial owners. Similarly, some non-governmental organizations have created databases that track beneficial owners across different countries and sectors.

Conclusion

Beneficial ownership refers to who enjoys the benefits of ownership even though the title is in another name. It can happen for various reasons, such as convenience, safety, or anonymity.

However, it also has implications for taxation and regulation, as well as transparency and accountability. Understanding what beneficial ownership means and how your jurisdiction regulates it is important.