Beneficial Owner

Loading the player...

What is a 'Beneficial Owner'

A beneficial owner is a person who enjoys the benefits of ownership even though title to some form of property is in another name. It also means any individual or group of individuals who, either directly or indirectly, has the power to vote or influence the transaction decisions regarding a specific security, such as shares in a company.

BREAKING DOWN 'Beneficial Owner'

For example, when shares of a mutual fund are held by a custodian bank or when securities are held by a broker in street name, the true owner is the beneficial owner, even though, for safety and convenience, the bank or broker holds title. Beneficial ownership may be shared among a group of individuals. If a beneficial owner controls a position of more than 5%, it must file Schedule 13D under Section 12 of the Securities Exchange Act of 1934.

Beneficial ownership is distinguished from legal ownership. In most cases, the legal and beneficial owners are one and the same, but there are some cases, legitimate and sometimes not-so legitimate, where the beneficial owner of property may wish to remain anonymous.

Securities

As mentioned in the example above, publicly traded securities are often registered in the name of a broker for safety and convenience. The Securities and Exchange Commission (SEC) recognizes this and has regulated the practice. In private companies, for a number of reasons, beneficial owners may not want their name as shareholder of record. As long as tax laws and other laws are complied with, this practice is not illegal in itself.

Real Estate

In most countries, real estate registries show the names of the owners of properties. In some cases, beneficial owners may not want their name to appear on public records. In such cases, it is common for trustees or other entities to act as legal owners in place of the beneficial owner. For example, famous artists or politicians may not want their home address to be easily found in public records, so they do not appear personally on title deeds.

Asset Protection

Wealthy individuals who are at risk of lawsuits, or simply want to protect their assets and plan their estate, generally use trusts to act as legal owner of property, often securities and money, while they and their families continue to be the beneficial owners. Here again, this practice is legal but highly regulated.

Panama Papers

Famously, in early 2016, the International Consortium of Investigative Journalists made public what it called the "Panama Papers." These documents, taken from the archives of the law firm Mossack Fonseca & Co., show in detail the beneficial ownership of several thousands of offshore corporations. While many were used legally, it appears some beneficial ownership was hidden for nefarious or illegal motives.

RELATED TERMS
  1. Non-Objecting Beneficial Owner ...

    A beneficial owner who gives permission to a financial intermediary ...
  2. Interested Shareholder

    A shareholder or association with beneficial ownership, whether ...
  3. Beneficial Interest

    The right to receive benefits on assets held by another party. ...
  4. Actual Owner

    A person or entity that receives the benefit of ownership. Being ...
  5. SEC Schedule 13D

    A report that must be submitted to the Securities and Exchange ...
  6. Custodial Agreement

    An arrangement whereby one holds an asset or property on behalf ...
Related Articles
  1. Investing

    Who is a Beneficial Owner?

    A beneficial owner enjoys the benefits of owning an asset even though its title is in another’s name.
  2. Retirement

    Holding Titles On Real Property

    Find out how best to claim and convey ownership on your assets.
  3. Retirement

    Using Insurance in a Business Succession Plan

    How to use life and disability insurance to help fund a business succession or buyout plan.
  4. Entrepreneurship & Small Business

    5 Reasons Small Business Owners Sell Their Companies

    Selling a business you've built from scratch isn't done lightly. Consider these moments when the opportunity might be right for you.
  5. Financial Advisor

    How to Ready Your Advisory Practice for Sale

    Advisors who plan to sell their practice need to consider these steps in advance.
  6. Investing

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  7. Managing Wealth

    Why Successful Business Owners Sell Out

    Learn the motives that drive companies into the arms of an acquirer.
  8. Managing Wealth

    Don't Get Sued: 5 Tips To Protect Your Small Business

    Find out what you can do to limit risk and keep your business running smoothly.
  9. Financial Advisor

    Small Business: It's All About Relationships

    Rather than be a jack-of-all-trades, an owner should rely on a network of trusted experts.
  10. Entrepreneurship & Small Business

    Which Type of Organization Is Best For Your Business?

    Learn the differences between the types of business organizations so you can determine how to best structure your business for tax and liability limitations.
RELATED FAQS
  1. What are the major types of business in the private-sector and how do they differ ...

    Learn more about how private companies are organized and how large and small companies differ from one another in organization ... Read Answer >>
  2. Do companies have to pay back their paid-up capital?

    Learn what business structures are available to entrepreneurs, and learn the process for making the most appropriate selection ... Read Answer >>
  3. What does "in street name" mean, and why are securities held this way?

    In almost every instance when you buy or sell securities with a broker, your name is not actually on the stock or bond certificate. ... Read Answer >>
  4. What are some examples of how corporations manage short-term investments?

    Learn how a business owner can protect against significant liability by forming a corporate entity structure, and understand ... Read Answer >>
  5. What do states do with unclaimed property?

    Understand what unclaimed property is and what types of property can be considered abandoned or unclaimed. Learn what states ... Read Answer >>
  6. How are savings bonds taxed?

    Learn who is responsible for reporting U.S. EE savings bond interest for taxation and when the interest can be reported for ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center