What is Beneficial Ownership? Types & Requirements Guide

November 2, 2025

What Is Beneficial Ownership? Meaning, Types & Reporting Guide

Beneficial ownership refers to the natural person who ultimately owns or controls a legal entity, even if the legal title is held in another name, such as a nominee or another company. This individual is the one who ultimately profits from or exercises significant influence over the entity's activities. Control is generally indicated by holding, directly or indirectly, a sufficient percentage of shares, often defined as more than 25%, or by having the power to appoint senior management.

Beneficial Owner Meaning

Beneficial ownership is the identification of the natural person who ultimately owns or controls a legal entity, typically by holding over 25% equity or exercising effective control. This process is mandatory for AML/KYC compliance, as it is the crucial defense used by financial institutions to prevent criminals from exploiting anonymous corporate structures for money laundering, terrorism financing, and fraud. Regulators, like U.S. FinCEN, now require companies to file and maintain accurate records of these beneficial owners to a central registry to increase financial transparency and safeguard the system.

The Financial Action Task Force(FATF) defines an Ultimate Beneficial Owner (UBO) as the “natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted.

It also includes those persons who exercise ultimate effective control over a legal person or arrangement.” Anytime an account is opened or maintained, financial institutions must obtain the identity of all individuals who have significant ownership or control, and the UBO should undergo a Know Your Customer (KYC) check.

Identifying beneficial owners is not just a regulatory obligation; it is a key risk management procedure. For further details, see our blog on Beneficial Ownership: Compliance vs Business where we explore this topic further.

The Role of Beneficial Ownership in AML & KYC

Beneficial ownership disclosure is a powerful tool for enhancing Anti-Money Laundering (AML) and Know Your Customer (KYC) practices across the financial sector. Opaque or anonymous ownership allows illicit players to funnel dirty money and finance terrorism, as well as enabling tax evasion. By unmasking the individuals behind corporate entities and understanding their source of wealth and funds, financial institutions can prevent the proceeds of corruption, fraud, and other crimes from entering the system. Consequently, public access to verified ownership information improves the business environment by reducing risk and boosting global trust and transparency.

4 Types of Beneficial Owner

Examples of different types of beneficial ownership include UBOs of a business, a trust, a property or securities:

The UBO of a business will own the majority of its shares and will therefore earn money from the company.
A trust is a legal arrangement in which one party (the trustor) transfers ownership of assets to another party (the trustee) for management on behalf of a third party (the beneficiary).
Regarding property, the person who enjoys the benefits of a property is also usually its legal owner, however if individuals prefer to keep their ownership private, they can do so via a trust.

As for securities, although the publicly traded stocks are registered in the name of financial institutions, the individuals holding these shares are the UBOs as they are entitled to any capital gains from their sale or trade.

What is the Beneficial Owner Rule?

Transparency and compliance are the cornerstones of a robust financial system. The Panama Papers Leak demonstrated the complex and opaque nature of ownership structures employed by multinational companies. This lack of transparency surrounding beneficial ownership was a substantial loophole that enabled the illicit laundering of funds via offshore accounts. The investigation into the leaked documents served as a stark wake-up call for government agencies, emphasizing that the absence of beneficial ownership transparency is in fact a gap in due diligence infrastructure.

In order to prevent illicit financial flows, the United States government is introducing the Beneficial Ownership Information Reporting Rule in January 2024, enforced by the Financial Crime Enforcement Network (FinCEN), which will require many companies in the U.S. to disclose information about their beneficial owners.

This rule aims to safeguard the U.S.’s financial system from illicit use and, by association, help prevent or counteract financial crimes in the country, including money laundering and tax evasion. To achieve this, it is imperative to understand who companies are doing business with, including the underlying ownership and control structures of its business partners.

KYC Beneficial Owner Requirements

1. Identifying the Beneficial Owner

A natural person (individual) is generally considered a beneficial owner if they meet at least one of the following criteria:

Ownership Threshold: They directly or indirectly own or control more than 25% of the entity's shares, voting rights, or overall ownership interest.
Control via Other Means: They exercise control over the entity through means other than ownership, such as a shareholder agreement, the exercise of dominant influence, or the power to appoint senior management (e.g., directors or CEO).
Senior Managing Officials: If, after exhausting all reasonable means, no natural person can be identified based on ownership or control, the names of the entity's senior managing officials (like a CEO or director) must be recorded as a default.

2. Mandatory Reporting and Maintenance

Legal entities must fulfill two key compliance obligations:

Internal Register: The entity must maintain an adequate, accurate, and current internal register of its beneficial owners, which is separate from its statutory records (like shareholder or director registers).
Central Register Filing: The entity must file the beneficial ownership information with a designated central government register (e.g., the Register of Beneficial Ownership in many jurisdictions). New changes to the beneficial ownership must typically be reported to this central register within a short timeframe (e.g., 14 days of the change).

3. Required Information

For each beneficial owner identified, the entity must collect and report detailed personal information, which typically includes:

- Full Name
- Date of Birth
- Nationality and Residential Address

A statement of the nature and extent of the interest or control exercised.

Common Challenges to Determining a Company’s Beneficial Owner

1. Laws, regulatory requirements and client documentation standards can vary significantly across jurisdictions, making the lack of a coordinated international approach one of the main challenges in identifying UBOs.
2. Offshore entities and secrecy havens often exploit this lack of uniformity through lax laws around beneficial ownership, offering anonymity and opacity. As a result, cross-border variations in disclosure requirements obscure ownership, making compliance increasingly difficult for multinational organizations.
3. On the topic of jurisdictional inconsistency, in some countries, ownership can be readily transferred. These shifts in control can occur without notifying the bank, meaning high-risk individuals could gain control of an entity without the bank's knowledge, exceeding the financial institution's risk appetite. If these ownership changes go undetected or undisclosed, financial institutions may unknowingly maintain high-risk clients.
4. Not only is there a lack of standardized approach across jurisdictions, but UBO regulations are in a state of constant evolution. It is crucial financial institutions remain vigilant and adapt to changing requirements in order to stay compliant.

Beneficial Ownership FAQs

What does beneficial owner mean?

A beneficial owner is a natural person who ultimately owns or controls a legal entity (like a corporation or LLC), even if the title or legal ownership is in another person’s or company’s name. This individual is the one who ultimately benefits from the entity's activities.

How to identify the ultimate beneficial owner?>

The ultimate beneficial owner is identified by tracing the ownership and control structure of a company. Generally, this involves identifying any individual who directly or indirectly owns or controls 25% or more of the entity's equity or voting rights, or any person who exercises substantial control (e.g., a CEO, President, or high-level executive).

Who is a beneficial owner for FinCEN?

For the U.S. Financial Crimes Enforcement Network (FinCEN), a beneficial owner is any individual who either exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of the company.

What is the beneficial owner report?

The beneficial owner report refers to the document that most companies are legally required to file with a central authority (such as FinCEN in the U.S.) to disclose the identities and personal information of their beneficial owners.

What is beneficial ownership verification?

Beneficial ownership verification is the process where financial institutions or government agencies collect and confirm the identity of a customer's beneficial owners, usually by checking identity documents and cross-referencing information with official registers.

What is a beneficial owner example?

An example is a person, Alice, who owns 100% of Company A, which in turn owns 60% of Company B. Alice is the beneficial owner of Company B because she ultimately controls it through her ownership of the parent company, even though Company A is the legal shareholder.

What is beneficial owner vs beneficiary?

A beneficial owner has the right to enjoy the benefits, use, and income from property, often while another party holds legal title. A beneficiary is a person designated to receive assets or income from a trust, will, or financial account upon a certain event (like a death). While a beneficial owner can be a beneficiary, the terms are not always interchangeable.

What is joint owner vs beneficiary?

A joint owner has a legal, shared title to an asset (such as a bank account or real estate) while they are alive. A beneficiary is someone who has a right to the asset only after a specific event, typically the death of the owner, as designated in a will or transfer-on-death clause.

What does objecting beneficial owner mean?

An objecting beneficial owner refers to a shareholder in a publicly traded company who instructs their broker (the legal owner of the shares in "street name") not to disclose their identity to the company's management. This term primarily relates to the administration of shareholder voting and communication, not AML/KYC requirements.

Which Industries Are Most Susceptible to the Misuse of Beneficial Ownership?

Industries that involve complex ownership structures, such as real estate, shell companies, and trusts, are particularly susceptible to the misuse of beneficial ownership.

Customer Due Diligence & KYC With Fenergo

To minimize the risk of exposing your organization to financial crime, it is essential to implement due diligence processes aimed at collecting information about the beneficial owner.

This is a key step in KYC as it identifies the individuals who ultimately control and benefit from a business. Fenergo’s KYC solution gives financial institutions peace of mind that the correct levels of due diligence are being applied to clients and related parties.