Beneficial owner

Beneficial owner

The concept of beneficial ownership is essential in company law because it determines who has the right to vote at shareholder meetings and who is entitled to receive dividends. It is also relevant in other areas of law, such as taxation and insolvency. 

It is crucial to identify the ultimate beneficial owner of a company or asset for several reasons, as it can help prevent fraud and other illegal activity. It can also help to ensure that the company or asset is being used for legitimate purposes and that it is being managed in the best interests of the ultimate beneficial owner. 

What is a beneficial owner?

The beneficial ownership of a company’s shares refers to the ultimate owner, i.e., the person who enjoys the benefits of owning them. This is usually the person who has ultimate control over the company, although there may be intermediate owners. 

The beneficial owner of shares may be different from the legal owner. For example, shares may be held by a trustee on behalf of the beneficial owner. In some cases, the beneficial owner may be a nominee of the legal owner. 

Origin of beneficial ownership

Section 90 of the 2013 Companies Act is the foundation for beneficial ownership of shares. Section 90 aims to clarify that the Central Government may select one or more competent individuals to investigate and provide a statement on beneficial ownership of any share or class of shares. 

What are the criteria for beneficial ownership?

Several criteria can be used to determine beneficial ownership, including voting, economic, and contractual rights. Voting rights refer to the power to elect or appoint directors or influence a company’s management. Economic rights refer to the power to receive dividends or other economic benefits from the ownership of a company or asset. Contractual rights refer to the rights conferred by a contract, such as a shareholders’ agreement. 

The criteria for beneficial ownership can vary depending on the jurisdiction in which the company or asset is located. In some jurisdictions, beneficial ownership may be determined by reference to the law of trusts, while in others, it may be based on the concept of control. Ultimately, determining beneficial ownership is a factual inquiry that must be made on a case-by-case basis. 

What is beneficial owner transparency?

The concept of beneficial owner transparency is relatively new, but it is gaining traction to combat corruption and money laundering. The idea is that companies should be required to disclose the ultimate beneficial owners of their shares to clarify who is behind the scenes. This would make it much harder for criminals to hide their assets and would help to prevent corrupt officials from using shell companies to funnel money into their own pockets. 

There are some challenges to implementing beneficial owner transparency, but it is generally seen as a positive step forward. It would help to level the playing field for honest businesses and make it much harder for corrupt individuals to get away with their crimes. 

Why is beneficial owner transparency important?

Transparency around beneficial ownership is important for several reasons. 

Firstly, it helps ensure that companies are not used for money laundering or other criminal activities. Suppose the beneficial ownership of a company is not clear. In that case, it may be easier for criminals to use the company to launder money or hide assets’ actual ownership. 

Secondly, beneficial ownership transparency helps to prevent corruption. If a company’s beneficial ownership is unclear, it may be easier for corrupt officials to funnel money through the company to themselves or their friends and family. 

Thirdly, beneficial ownership transparency helps to ensure that companies are paying their fair share of taxes. If a company’s beneficial ownership is unclear, it may be easier to hide its assets and avoid paying taxes. 

Fourthly, beneficial ownership transparency helps to protect the rights of shareholders. If a company’s beneficial ownership is unclear, it may be difficult for shareholders to exercise their rights or hold the company accountable for its actions. 

Overall, beneficial ownership transparency is vital for several reasons. It helps to combat money laundering and corruption, and it also helps to ensure that companies are paying their fair share of taxes. Additionally, it helps to protect the rights of shareholders. 

Frequently Asked Questions