Beneficial ownership definition
The beneficial owner is the real owner of an asset for which a different person or company is the registered owner
A beneficial owner, or actual owner, is one or more individuals who are the true owners of an asset or property, but a different person holds the title. The entity holding the title or ownership is referred to as the “nominee” or “registered owner”. By assigning a nominee (agent, custodian, etc.), the legal rights of the true owner are not waived or eliminated. The beneficial owner has a say in issues related to the assets and has the right to vote. Also, they have the right to any income generated by the asset, as well as the obligations to pay taxes and other applicable charges.
Specific rules and regulations have been established related to beneficial ownership status. There are different types of requirements, such as due diligence, to be followed by banks, brokerage houses, investment funds, and other financial institutions, with the objective to limit financial crime and money laundering practices. According to the new rules, beneficial ownership should be stated and identified for accounts where the legal owner is different from the beneficial owner.
Beneficial ownership meaning
There is a difference between beneficial ownership and legal ownership, although it is common for the legal owner to be the beneficial owner if they are the same person or persons. The legal owner is the entity listed in the public records. This type of ownership can exist in the stock market where an entity is the actual owner of the shares, but the title is recorded under a different entity, such as a brokerage company.
Let's say that investor A buys 1,000 shares in company C and the transaction is executed through brokerage company B. After the purchase, the shares will be registered under the name of B, but the actual owner is A. Consequently, the beneficial owner A has the right to collect potential capital gains or losses, dividends, and the obligation to cover relevant tax requirements.
A beneficial owner may register the title for assets to an agent or a trustee for numerous legal or illegal reasons. The real owner may want anonymity or not want an association of their name with property or other forms of assets. This is usually the case with celebrities who register their address to another name in an attempt to hide the location of their true residence.
A person may become a beneficial owner to launder money earned from illegal activities. In such cases, the money is invested in different assets by the trustee.