Beneficial Owner

Types, How to Identify, & Examples

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Although an asset's legal owner and beneficial owner are often the same, they are not always. In some cases, the person who officially holds the title to a business, property, trust, security, or other asset differs from the person who controls it or receives the most benefit from its value. 

In these cases, a beneficial owner is established in place of the legal owner. We’ll explain who beneficial owners are, and why it’s vital to know about them.

We’ll start with a beneficial owner definition to describe how the person’s role relates to their assets, especially in contrast to a beneficiary or legal owner.

State of Fraud and AML Report Volume 2

What is a Beneficial Owner?

A beneficial owner is someone who owns at least part of a property or other asset, even if its legal title is owned by someone else. That person can also vote on or otherwise influence decisions regarding transactions involving that asset or property. An example is a corporate shareholder.

What is an Ultimate Beneficial Owner?

An ultimate beneficial owner is a person who stands to gain the most from transactions involving an asset and is the person who is most able to influence decisions regarding those transactions. 

The main difference between a beneficial owner and an ultimate beneficial owner usually comes down to how much of the asset they own, how weighty their vote is in determining what to do with said asset, and how much they earn from transactions involving the asset.

Definitions vary by region, but typically a person must have at least 25% of ownership rights, voting rights, or rights to capital gains for an asset to be considered an ultimate beneficial owner.

Beneficial Owner vs. Beneficiary: How They Differ

A beneficiary is someone designated to receive money, property, or other benefits of assets via a trust or will. The difference between beneficial owner vs. beneficiary is that beneficiaries usually need to have ownership (either legal or beneficial) over the assets they benefit from. 

They may, however, gain ownership if certain conditions are met (e.g., the legal owner passes away). They also typically do not have voting rights or other influence over how the asset is to be managed, unlike how beneficial owners do.

Types of Beneficial Owners: Who is Considered a Beneficial Owner?

Beneficial ownership applies in many different scenarios, including in relation to investment assets and legal entities. For financial institutions, beneficial owners are typically legal entities.

According to financial institutions, a beneficial owner of a legal entity falls under one of the following:

  • Any individual that owns a minimum of 25% of the legal entity
  • Any individual that holds a significant ability to control, manage, or direct the legal entity
  • Any trust that owns a minimum of 25% of the legal entity

Under this definition, legal entities can include corporations, partnerships, limited liability companies, among others.

To better understand how beneficial ownership works, we explore examples of different types of beneficial owners below.

How to Identify a Beneficial Owner

While countries have their own rules regarding customer due diligence, many follow the standards set by the international Financial Action Task Force. For a financial institution, the process of how to identify an ultimate beneficial owner – or even minor beneficial owners – generally looks like this:

Step 1: Obtain essential information on assets

Beneficial owners control or benefit from assets such as companies, properties, trusts, securities, funds, and so on. So the first step is to gather key information on those assets. 

These could include the names, addresses, registration numbers, and legal statuses of relevant businesses and properties. It can also include the names and addresses of anyone on a company’s board of directors, or anyone involved in a trust – trustors, trustees, and (if possible) beneficiaries.

Step 2: Identify an asset’s ownership structure and proportions

Businesses and other assets may use positions, terms, and systems such as “nominees,” “corporate directors,” or “bearer shareholders” to obfuscate who really owns them. Keep in mind the general criteria for beneficial owners – capital share, management voting rights, and profit share – when reviewing information about an asset to determine who directly and indirectly owns it. Then find out how ownership of the asset is divided up among those people or groups.

Step 3: Verify which stakeholders qualify as beneficial owners

Generally, someone who holds at least 25% of the capital stake, voting powers, and/or profit rights for an asset is considered a beneficial owner (or ultimate beneficial owner, if their ownership share is among the highest for that asset). 

However, that threshold may vary based on jurisdiction (sometimes as low as 10% or even 5%), so make sure to check a country’s specific legislation when making a list of beneficial owners of an asset.

Step 4: Conduct AML/KYC checks on anyone identified as a BO/UBO

Anyone who meets the criteria for a beneficial owner or ultimate beneficial owner for an asset should be subjected to KYC/AML screening

This helps to verify a beneficial owner is a real person who is accurately representing themselves. It also checks if that person is conducting legitimate business, including getting their funds from non-criminal sources.

Beneficial Owner Information to Collect

Once someone is identified as the beneficial owner of an asset, document vital information about them as part of customer due diligence.

In some cases, there is a formal beneficial owner form the person can fill out for this purpose. In other cases, the person can informally verbally give the required information, or it can be looked up in public or commercial records.

Standards vary by country, but details that should be recorded about any beneficial owner of an asset include:

  • Full name
  • Title
  • Date of birth
  • Country of residence
  • Home address
  • Citizenship
  • Social security number 
  • Passport number and issuing country
  • Any other ID issued by a federal government

Examples of Different Types of Beneficial Owners

So who is considered a beneficial owner of an account, property, or other assets? Many types of assets can have a beneficial owner separate from the legal owner, though sometimes this is the same person. Beneficial owners can also be organized groups of people. So a beneficial owner of an entity may be:

Beneficial Owner of a Business

Someone can be the beneficial owner of a company by owning shares in it. This is a way for them to potentially earn money from – and influence the direction of – a company without being obligated to participate in its day-to-day management.

Beneficial ownership can also sometimes be used to conceal who is really running a company. Sometimes there are legitimate reasons for this, while other times, it’s done with nefarious intent.

Beneficial Owner of a Trust

A trust is an agreement where someone (a trustor) gives legal ownership of assets to someone else (a trustee) in order to manage them on behalf of a third party (beneficiary). In some cases, a trustee can be a beneficial owner of a trust if they also stand to personally benefit from how the assets are managed. One such situation would be if the main beneficiaries are the trustee’s family members, and they are planning how to divide up their estate after they pass away.

Beneficial Owner of a Property

The beneficial owner of property is usually also the legal owner. However, there are some situations in which a person may not want it publicly known that they own a certain property. For example, a celebrity or politically exposed person may wish to preserve their privacy or protect themselves by not publicly revealing where they live. So they’ll often establish a trust to avoid being named as the legal owner of their home.

Beneficial Owner of Securities

Publicly-traded stocks and mutual fund shares are often legally registered as belonging to a financial institution, such as a bank or stockbroker. This is done largely for the sake of security and convenience. However, it is the person who holds the share who is ultimately entitled to any capital gains from selling or trading it.

Verify and Monitor the Beneficial Owners of Assets

Identifying beneficial owners and verifying who they are is important because people want to know who they’re really doing business with. 

Unfortunately, beneficial ownership and complex corporate structures are sometimes used to conceal who is really profiting from a company or other asset – including potentially through illicit dealings.

That’s why financial institutions must understand who controls businesses, trusts, properties, securities, and other customer assets. This is important not only when onboarding new customers, but also through the customer lifecycle to ensure the client’s transactions remain within legal bounds.

Unit21’s no-code AML solutions can help make compliance with beneficial owner-monitoring laws easy. Contact us today to book a demo.