Tolu Ajimoko

Vice President, Product Management

Beneficial ownership: A global guide to understanding and filing

Behind many legal entities worldwide, there is a beneficial owner — a person who owns or controls a substantial share of a company, even if they aren’t involved in that company’s operations. Despite its prevalence, beneficial ownership stayed relatively out of the spotlight until 2022.

In September of that year, the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a new beneficial ownership rule. By early 2024, 32.6 million companies had to file beneficial ownership information. The U.K., Ireland, Australia and other countries also have equally stringent regulations regarding beneficial owners.

This article will help you understand and take steps toward complying with them by explaining:

• Who a beneficial owner is
• Beneficial ownership definitions in the U.S., U.K., Ireland, Australia, United Arab Emirates (UAE) and South Africa
• Beneficial ownership examples
• Regulations, standards and reporting requirements
• How to file beneficial ownership information
• Challenges to filing across borders
• Using technology to streamline beneficial ownership filing

What is a beneficial owner?

A beneficial owner is an individual or entity with a management or ownership stake in a company, even if that company is legally registered to another entity. The exact definition of beneficial ownership varies slightly depending on the country. However, identifying and filing beneficial owners is essential to transparency, preventing money laundering and upholding good corporate governance.

Beneficial ownership in the U.S.

Beneficial ownership in the U.S. refers to the true, substantive ownership of an asset or property, even if the title or legal ownership is in another name. This concept is crucial for transparency and regulatory compliance, particularly in financial and legal sectors. The beneficial owner enjoys the benefits of ownership, such as income from or control over the asset, while the nominal owner may act on behalf of the beneficial owner but does not enjoy those benefits.

Beneficial ownership in the U.K.

To be a beneficial owner in the U.K., an entity must either hold at least 25% of shares or voting rights in a company or have significant influence over it. Beneficial owners must also file with a public register called the People with Significant Control (PSC) register.

Beneficial ownership in Ireland

Beneficial ownership in Ireland is similar to the U.K. but with slight differences. Ireland does not recognize influence and instead only recognizes individuals or entities that control or own, directly or indirectly, more than 25% of a company’s shares or voting rights. Companies must maintain their own internal register of beneficial owners, and then report that information to a public register.

Beneficial ownership in Australia

In Australia, beneficial ownership begins when someone owns 25% or more of a company’s shares or voting rights directly or indirectly. The country also recognizes a beneficial owner as someone controlling company operations.

Beneficial ownership in the UAE

The UAE defines a beneficial owner as a person or entity that owns or controls at least 25% of a company or has the power to appoint or remove the company’s directors. Companies that operate in the UAE must report beneficial owners to the relevant authorities.

Beneficial ownership in South Africa

South Africa considers a beneficial owner anyone with a controlling interest in a company, either by holding shares, voting rights or influencing decision-making.

Beneficial ownership examples

Beneficial ownership is a distinct and little-understood legal concept. However, many public figures are beneficial owners and can help explain how beneficial ownership plays out in various contexts.

Trusts

Someone can establish a trust, which can, in turn, legally own shares in a corporation. The trust is the legal owner, but the individual is the beneficial owner because they control the trust and its assets. The individual ultimately benefits from the shares in the corporation by receiving dividends or influencing decisions.

Offshore entities

Someone can register an offshore entity in another location, like the Cayman Islands. That entity can then own a majority stake in a company elsewhere. In this scenario, the offshore entity is the legal owner, the the person who registers the offshore entity is the beneficial owner.

This beneficial ownership structure came under particular fire in 2016 when the International Consortium of Investigative Journalists released the Panama Papers. These documents revealed hidden beneficial ownership details for thousands of offshore corporations. The papers named several public figures as beneficial owners, including British Prime Minister David Cameron.

Joint ownership

Two individuals each hold 20% of a company’s shares. One of those individuals can allow the other to control their votes. In that case, the individual with control over both shares is a beneficial owner of 40% of the company, even though they only legally own 20%.

Mark Zuckerberg is a well-known beneficiary of a similar structure. While he owns less than 14% of Facebook’s stock, the dual-class share structure he enjoys gives him effective control over the company, even though other individuals collectively hold the majority of shares.

Control through voting rights

A person can be a minority shareholder in a corporation by owning a small share of its stock. However, if that person has secured special voting rights to appoint or remove executives, they are considered a beneficial owner.

Indirect ownership through family

Familial relationships can also influence beneficial ownership. If a person owns no shares but their spouse does, that person is considered a beneficial owner under certain frameworks because they stand to benefit from the company’s success.

Global beneficial ownership regulations, standards and reporting requirements

Beneficial ownership reporting requirements arose to promote transparency and mitigate the risk of illicit activity, such as money laundering and tax evasion. Reports like the Panama Papers only underscored the need to make it harder to conceal illegal activity behind complex ownership structures.

Though many countries have cracked down on beneficial owners, each has distinct requirements.

Corporate Transparency Act (CTA): U.S.

The CTA, part of the Anti-Money Laundering Act of 2020, aims to prevent money laundering, tax evasion and terrorism financing. Most companies formed in the U.S. must report their beneficial ownership information to FinCEN.

• Requirements: Companies must disclose beneficial owners’ names, birthdates, addresses and identification numbers.
• Enforcement: Non-compliance can result in civil and criminal penalties, including fines and jail time.

EU’s Fifth Anti-Money Laundering Directive (5AMLD): European Union

5AMLD sets out stringent requirements for beneficial ownership to enhance financial transparency. The act makes beneficial ownership information accessible to authorities and, in many cases, the general public.

• Requirements: Companies must report beneficial ownership information to a central register, which becomes public information.
• Enforcement: Non-compliance can result in fines and sanctions from authorities.

European Union Corporate Sustainability Due Diligence Directive (CSDDD): European Union

The EU also tackles beneficial ownership through the lens of corporate responsibility and sustainability. Provisions in the CSDDD require companies to disclose beneficial owners to promote responsible business practices throughout the supply chain.

• Requirements: Companies must disclose beneficial owners as part of broader due diligence on sustainability.
• Enforcement: EU member states must establish their own enforcement mechanisms, which can include penalties for companies that fail to disclose.

Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) Standards

The Financial Action Task Force (FATF) is an international body combatting money laundering and terrorism financing through mandates like AML/CFT. These include requirements around beneficial ownership transparency.

• Requirements: Financial institutions and specific non-financial businesses must identify and verify their clients’ beneficial owners. Countries must also maintain an accessible central register.
• Enforcement: Companies that fail to comply with FATF could be blacklisted or face economic sanctions.

Economic Crime (Transparency and Enforcement) Act (ECCTA): United Kingdom

The U.K. introduced the ECCTA to create transparency and prevent instances of economic crime, especially in the real estate sector.

• Requirements: Foreign entities owning property in the U.K. must register beneficial ownership details with the U.K.’s Companies House.
• Enforcement: Companies that don’t comply may face criminal penalties like fines and imprisonment.

How to file beneficial ownership information

The process of filing beneficial ownership information varies by jurisdiction. Generally, though, companies must submit information to a central authority or registry. Here’s a step-by-step guide on how to file in key jurisdictions.

Filing in the U.S.

Companies in the U.S. must submit beneficial ownership information to FinCEN according to the following process:

• Determine eligibility: Most small companies and LLCs must file, but certain entities like large corporations and nonprofits may have an exemption.
• Collect Information: Companies must then collect the names, birth dates, addresses and identification numbers of the beneficial owner(s).
• Submit to FinCEN: Once the reporting system is fully implemented (expected this year), companies can file an electronic report through the FinCEN Beneficial Ownership Secure System.
• Update information: FinCEN requires companies to report changes in beneficial ownership within 30 days.

Filing in the U.K.

Under the ECCTA, U.K. companies and foreign entities owning property and trusts must furnish Companies House with beneficial ownership information.

• Determine beneficial owners: Covered entities must first identify any individual or entity that owns more than 25% of shares, has voting rights or controls the company.
• Prepare information: Entities should then gather owners’ names, birth dates, nationality, residential addresses and details of their control.
• Submit to Companies House: Companies can file beneficial ownership information via the Companies House website.
• Annual confirmation statement: U.K. companies must also file an annual confirmation statement confirming that the beneficial ownership information is current.

Filing in Australia

Australia is developing a beneficial ownership register but, in the interim, only requires companies in certain sectors to report beneficial owners.

• Identify beneficial owners: This includes someone with 20% of the company’s shares or voting rights in sensitive sectors like mining and resources.
• Prepare information: Australia requires companies to submit beneficial owners’ names, addresses and the nature of their interest in the company.
• Submit to the authority: Companies must submit to the relevant authority for their industry, including the Australian Securities and Investments Commission (AISC) or other sector-specific authorities.
• Report changes: Australian companies must report any updates in beneficial ownership.

Filing in the UAE

Companies in the UAE must file according to the country’s Ultimate Beneficial Ownership (UBO) regulations.

• Identify UBOs: Companies must identify who constitutes a beneficial owner under UAE law.
• Gather information: For beneficial owners, companies must provide full name, nationality, passport details, residential address and ownership control.
• Submit to UAE authorities: Beneficial ownership information must be submitted to the relevant authority, such as the Ministry of Economy or the respective free zone of authority, depending on jurisdiction.
• Update information: Any changes in UBO information must be reported within 15 days.

Challenges of filing beneficial ownership across borders

As detailed above, different jurisdictions have different requirements for collecting and reporting beneficial ownership information. What if an entity operates in more than one jurisdiction?

While beneficial ownership regulations have improved transparency and combat financial crimes, they’ve also complicated operations for companies operating in multiple countries. The more than 80,000 companies operating across borders worldwide face myriad challenges in beneficial ownership, including:

• Lack of complete information: Building a comprehensive list of beneficial owners is more complicated than it seems. Disparate systems and departments, not to mention frequent acquisitions and restructures, create complexities in identifying entity owners and compiling the necessary information.
• Poor visibility: Ownership details can be easy to overlook, especially for companies that lack complete visibility into their structure across jurisdictions. Yet, the stakes are high; civil penalties can range from $500 per day to a maximum of $10,000 for ongoing violations.
• Weak data security: Beneficial ownership information is highly sensitive. Though regulations require companies to share it with select officials, doing so can be risky. Personal devices and unencrypted communication can easily be exposed in a ransomware attack.
• Inconsistent definitions: The threshold for a beneficial owner varies between jurisdictions. Someone who owns 20% of shares would be a beneficial owner in Australia but not in the UK. This complicates filing beneficial ownership because companies need different ownership datasets for the same beneficial owners depending on the country.
• Differing privacy and disclosure requirements: Beneficial ownership is public in some companies and private in others. EU member states, for example, maintain public registers, while the CTA regulation in the U.S. restricts access to that information. Companies need to understand and navigate privacy requirements that vary widely, introducing additional risks of non-compliance.
• Complex ownership structures: Global entities have complex structures that include subsidiaries, trusts or offshore entities, making it difficult to identify the true beneficial owner. Untangling layered corporate structures that span different legal systems is time-consuming and increases the risk of errors or omissions.
• Varying filing procedures: Companies file beneficial ownership information in different ways, from the information they must include to the authority they must register with. This can increase the time and cost of filing, which is a significant burden for smaller enterprises.
• Inconsistent timelines: Once companies register their information, they must keep it current. Differences in timelines across countries complicate this. For example, changes for the same beneficial owner would need to be reported within 15 days in the UAE or 30 days in the U.S.

5 ways technology streamlines beneficial ownership reporting

Digital transformation is revolutionizing many company operations, including filing beneficial ownership information across borders. Digital solutions streamline processes, improve transparency and reduce the administrative burden of compliance.

Technology makes it easier to:

1. Manage your corporate record: Tools like Diligent Entities, part of the Diligent One Platform, are on the cutting edge of corporate records management. Flexible data libraries can store data and documents for all entities globally, no matter the jurisdiction — eliminating the burden of tracking beneficial owners’ identification numbers and birthdays.
2. Maintain security: Gathering, storing and communicating about beneficial owners in a secure portal reduces the security risk. Leveraging dedicated software for sharing, storing and encrypting documents safeguards sensitive information. Multi-factor authentication adds another line of defense for beneficial ownership information.
3. Make informed decisions: Technology drives greater visibility by visualizing the entity structure. It can help you identify owners and determine whether restructuring or eliminating entities is a more strategic step toward compliance than keeping up with beneficial owner laws across jurisdictions. Model each scenario to make sure it’s the best option for your entity.
4. Simplify filing processes: Paper files and multiple versions of the same spreadsheet slow down operations and introduce the risk of errors. Technology with customizable templates, automation, filing interfaces and more brings accuracy and efficiency to a complex process
5. File beneficial ownership information directly: Premium software solutions can also file for you. Diligent Entities can automatically populate forms with your company’s information and e-file with the proper regulatory authorities — including FinCEN and Companies House — with a single click.

Start managing your entities with ease

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Paired with the right software solution, entity management is the (not-so) secret to a strong entity primed to scale. Download our guide now to learn how to turn entity management into a roadmap for overcoming the challenges and seizing the critical opportunities standing between you and growth.