Beneficial Owner

Beneficial owner refers to an individual enjoying the rights and benefits of an entity or property despite the property or entity having another person as the legal owner. It protects the owner from any legal lawsuit and allows the safety and ease of owning luxurious apartments and securities.

A bank and broker hold mutual fund shares and securities, respectively; however, the actual holders of these assets are the beneficial owner. Under the securities exchange Act 1934, the owners who own a share over 5% have to file papers under section 12 of Schedule 13D. Many celebrities want to keep their residence private, so they trust others as their beneficial owner.

• A beneficial owner means any living person controlling the majority share or voting rights of a legally constituted firm enjoying all benefits and rights of ownership. It is a person who benefits from ownership even while someone else holds the title to the property.
• It helps celebrities to avoid public attention to their properties and unnecessarily gets dragged into lawsuits by rivals. For simplicity and safety, publicly traded securities are frequently registered under the name of a broker.
• Legal and beneficial ownership are two different things, though they typically refer to the same.

A beneficial owner is a natural individual who owns or manages a legal entity through direct or indirect ownership of enough securities, bearer holdings, or voting rights in an entity. In other words, it also refers to any person or group who, directly or indirectly, can vote or impact the decisions made about a particular security, such as firm shares.

They benefit from ownership even while another entity holds the title to various property types. They can also be using bearer shareholdings or using other means. For simplicity and safety, the owners frequently registered publicly traded securities under the name of a broker.

The beneficial owner rule:

• The owner has to own more than 25% of company/trust shares directly or indirectly.
• They have to get more than 25% of company/trust voting rights directly or indirectly.
• Or owners need to handle and own the asset through other means like -
  • Via agreement of shareholders.
  • Via dominant exercising of influence.
  • Via the power of appointing senior executives of a firm.

Moreover, in the case of a subsidiary company owned by another company, a person holding more than 25% of the share or more than 25% share in the parent firm is termed as the beneficial owner of the subsidiary.

Wealthy people sometimes designate their assets as being held in trust even though they are still beneficial owners. Furthermore, if a naturally living individual holds the ultimate ownership of a firm, one may identify that person as having beneficial ownership. However, if, after all due diligence and records searching of an entity, one identifies no suitable owner, then any senior executive of that firm holds the position of a beneficial owner.

As per the paper published by OECD – WORLD BANK, South Eastern Europe Corporate Governance Roundtable, Transparency, and Disclosure, administrators formulated certain guidelines regarding ownership identification through implementation and enforcement on June 11. As a result, the two major tools for this ownership identification have been:

• The mandatory requirements include disclosing major market holdings and purchasing or selling companies.
• One has to form an end-investor or beneficial owner registry system to do the needful.

Both these tools mentioned above must stay within the legal and operative perspectives. Both serve a variety of needs and perform a variety of functions.

Globally, identifying beneficial ownership has made it a top priority to regulate and stop money laundering, prevent shell corporations, and stop investment into illegal activities through rerouting funds. Recently United States government has enacted the G20 Anti-Corruption Action Plan and certain rules like the United States FinCEN CDD final rule to bring transparency into beneficial ownership.

Moreover, Financial Action Task Force (FATF) tabled by G20 has pointed out that only a few countries have taken the initiative to collect data on beneficial ownership to make it publicly available. In the United States, several states mandate identifying beneficial owners during business creation, and registered company establishment and information sharing across provincial governments vary by geographic location.

Representative Carolyn Maloney's sponsored laundering money legislation, introduced on June 28, 2022, in the United States House of Representatives, has been the fifth effort to enact the legislation. Traditionally, trade associations have opposed the bill, which has caused it to collapse.

Let us look at an example to clarify the concept. An investor investing in securities through a broker can be the best example of a beneficial owner. Although the broker remains the security owner, he holds it on behalf of the investor. Here the investor becomes the ultimate beneficial owner, and the broker becomes the security custodian.

Beneficial ownership can make it easier to hold and control specific assets, like securities. Stock market trading is a typical example. It is uncommon for someone to take custody of the stocks they purchase, as this would need more documentation. Instead, the stockbroker, who owns them in beneficial possession, still holds their shares.

Holding ownership in one's name does come with some trade-offs. For example, all formal contact from the issuing company must go through the brokerage first. Thus, there may be some communication delays. Additionally, lenders may delay some dividend and interest payments.

In murkier situations, one might utilize beneficial ownership to conceal the true owner of a piece of property or security. Assets legally owned by a shell corporation under the beneficial owner's control could serve as an illustration. While these corporations are not necessarily unlawful, they are occasionally used to conceal the owner's financial assets.

Let us know the differences between the beneficial owner, legal owner, and beneficiary, as discussed in the table below:

This article has been a guide to Beneficial Owner and its meaning. We explain it in detail with its example, advantages, disadvantages & differences with legal owner. You may also find some useful articles here -

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