Beneficial Owner Meaning
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.
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Source: Beneficial Owner (wallstreetmojo.com)
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.
Table of contents
- Beneficial Owner Meaning
- Beneficial Owner Explained
- How to identify beneficial owner?
- Example
- Beneficial Owner vs Legal Owner vs Beneficiary
- Advantage And Disadvantage
- Frequently Asked Questions (FAQs)
- Recommended Articles
Key Takeaways
- 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.
Beneficial Owner Explained
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.
How To Identify 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.
Example
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.
Advantage And Disadvantage
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.
Beneficial Owner vs Legal Owner vs Beneficiary
Let us know the differences between the beneficial owner, legal owner, and beneficiary, as discussed in the table below:
| Beneficial Owner | Legal Owner | Beneficiary |
|---|---|---|
| It has recently come into existence because of money laundering, where beneficial owner declaration has been made mandatory. | It relates to legal or official ownership of any firm by its official. | This term has got used for many centuries in trust law. |
| It can be direct or indirect ownership of any property. | Legal owner means any legally registered person responsible for the property. | They receive a share of assets or profits after distribution among the trustees. |
| This owner can get termed the real owner of the property. | More than one legal owner of a property can exist. | Any number of beneficiaries, as decided by the trust, may exist. |
| It got enacted to prevent money laundering. | This position was implemented to have a firm or property legal owner. | It got implemented to handle trust properly. |
Frequently Asked Questions (FAQs)
A beneficial ownership certificate satisfies the Beneficial Ownership Regulation’s need for such a document and is essentially in the format specified therein.
The ultimate beneficial owner is an individual legally holding a company’s ownership. Regulatory authority mandates every registered entity to record the UBO of their company that works with banks, insurance companies, or other financial institutions.
For a trust, a beneficial owner gets identified as anyone having effecting management control over a firm or a company, like – trustees, protectors, beneficiaries, and settlers.
Legally speaking, anyone with the beneficial owner’s rights can enforce the property sale in any normal situation.
Recommended Articles
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 –
- Cross Trade
- Nominee
- Nominee Shareholder
This post first appeared on Free Investment Banking Tutorials |WallStreetMojo, please read the originial post: here
