What Is a Beneficial Owner: Definition & Guide
The business world has a lot of complex and intricate roles and functions.
This is especially true when it comes to the top hierarchy of ownership. There are a lot of roles at the top such as Founder, Owner, Managing Director, COO, CEO - the list goes on and on.
One such role is called a beneficial owner. But what exactly is a beneficial owner? We’ll take you through a definition and a guide to help you wrap your head around this title.
Here’s What We’ll Cover:
What Is a Beneficial Owner?
A beneficial owner is a title given to a person who can enjoy the benefits of ownership of a legal entity. This is whilst the title to a form of property is in another person's name.
It can also be used to describe any individual or group who has the power to vote or influence major decisions in a business sense. For example influence over a board of directors or a controlling share in a company.
In most cases, a legal and beneficial owner are one and the same. But beneficial ownership is still distinguished from legal ownership. A beneficial owner can have both direct ownership and indirect ownership of a company.
For example, when shares of a company are held by a bank or when securities are held by a broker, the true owner of the legal entity is the beneficial owner. But for safety and convenience, the bank or the broker will hold the title.
Beneficial ownership can be determined in a number of ways. But in the UK, most beneficial owners are likely to:
- Hold more than 25% of shares in the company
- Hold more than 25% of voting rights in the company
- Have the right to appoint or remove the majority of the board of directors
What Is the Difference Between Beneficial and Legal Ownership?
The difference between beneficial and legal ownership is quite simple.
Legal ownership refers to a person who owns an asset according to the legal paperwork. For example, the legal owner of a property is the person or entity that is named on the title deed.
A beneficial owner will have all of the rights and benefits of a legal owner but without their name being stated as the owner on the legal paperwork.
Why Be a Beneficial Owner?
The UK allows people to register for beneficial ownership for three different types of assets:
- Properties and Land
Many beneficial owners prefer to work in this manner as it protects their identity. There are both legal and illegal reasons for wanting to separate the legal and beneficial owners of an asset.
However, registers of beneficial ownership have to provide transparency. This is to go some way in the fight against corruption, tax evasion and money laundering. This is where the EITI comes into play.
What Is the EITI In Relation to Beneficial Ownership?
The Extractive Industries Transparency Initiative, or EITI, is a global standard for the governance of goods. This is mainly in relation to the governance of oil, gas and mineral resources.
When it comes to beneficial ownership, the UK meets the vast majority of the standards and requirements set by the EITI. This is because companies are required to disclose information on its People with Significant Control register, or PSC, register.
Every UK-registered company is required to submit information on anyone who has significant control to Companies House.
However, publicly listed companies are exempt from this requirement. This is as their information is already publicly available under stock exchange requirements.
Whilst there are a number of reasons to become a beneficial owner, the UK has systems in place that goes some way to stopping any illegal actions.
Beneficial ownership is a great way for a person to protect their anonymity. It can also help to bring convenience and direct control to ownership.
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