Beneficial ownership in law: Definitions and thresholds
Draft beneficial ownership definition
A beneficial owner (A) is a natural person (B) who has the right to some share or enjoyment of a legal entity’s income or assets (C) or the right to direct or influence the entity’s activities (control - (C)). Ownership and control can be exerted either directly or indirectly. (D)
Beneficial ownership should be disclosed when an individual’s aggregate control of, or economic benefit from, a company reaches or exceeds (E):
- 5% (F) of the company’s stock, votes, profits or assets; or
- The right to appoint board members or company officers.
The 5% threshold (G) applies in particular to, but is not limited to, the following types of economic or control interest:
- Ownership of shares
- Control over voting rights
- The right to profits or distribution of assets
- The right to enjoyment of the company’s assets (H)
- Other influence or control over the company
- Other economic benefits derived from the company.
The interests of a beneficial owner may be maintained directly or indirectly via mechanisms including, but not limited to (A):
- Influence or control granted through the rules or articles of the company or via a special class of share
- A legal instrument (i.e, a contract or agreement) that grants an individual control or financial benefit, such as a profit-sharing agreement
- An informal agreement that grants an individual control over the company or financial benefit from the company, such as exercising control via a family member or associate without a legal contract (I)
- A financial instrument that grants ownership or control rights, such as conditions attached to a loan
- A legal arrangement or structure that allows an individual to exercise control through a nominated intermediary, such as a nominee shareholding arrangement or a parent exercising control on behalf of a minor.
Where no beneficial owners of a company reach the thresholds for disclosure, all board members and senior managing officials should be disclosed as the parties responsible for the declaration. (J)
Explanatory notes
[A] Legislation in a jurisdiction should include a single and unified definition of what constitutes BO consisting of a broad catch-all definition, coupled with a non-exhaustive list of example ways in which BO can be held
[B] The definition should specify that a beneficial owner is a natural person
[C] The definition should cover both ownership and control interests
[D] The definition should encompass both indirect and direct interests
[E] Governments should require the disclosure of, and publish the way in which, an individual exercises BO over a company, including the exact percentage of ownership and control
[F] Thresholds should be set low to ensure that most or all people with relevant BO and control interests are identified in the disclosures
[G] Countries should apply a risk-based approach to thresholds, and should consider applying even lower thresholds to companies, sectors or individuals with higher associated risks – such as politically exposed persons (PEPs) – in secondary legislation
[H] Governments should provide companies with clear guidance on how to identify qualifying beneficial owners and how to calculate indirect ownership percentages; for instance, how to calculate the threshold on the enjoyment of assets
[I] Definitions should be adapted for local contexts; for instance, by assuming joint action by family members in countries where this is common
[J] The law should include reporting requirements for firms where no person falls within the threshold or definition of BO