How to identify beneficial owner?

I inquired about beneficial ownership earlier. Beneficial ownership refers to you if you obtain the benefits of ownership despite the fact that the title to a particular property is held by someone else. It also refers to any person or group of people who, directly or indirectly, has the authority to participate in or control transaction choices involving certain security, such as a company's stock. Let's study Who is beneficial owner.

How to identify beneficial owner?

• A beneficial owner can be you if you receive the benefits of ownership despite the fact that the property is registered under a different name.

• Beneficial ownership differs from legal ownership, however, in some circumstances, legal and beneficial owners are the same person.

• For security and convenience, publicly listed assets are frequently registered in a broker's name.

• Trusts are frequently used by rich people who are at risk of being challenged to appear as the legal owner of their property.

What is beneficial owner right?

If you are working alone or in cooperation with others, or via one or more individuals or trust, then you have one or more of the relevant 'rights or claims' in the company:

1) If you own not less than 10% of the shareholdings (the word "shares" means mandatorily changeable share capital, mandatorily convertible debentures, and worldwide depository receipts), either directly or indirectly.

2) You have the right to receive or contribute not less than 10% of the total exchangeable dividend or other distribution in a calendar year via indirect holdings alone or in combination with direct ownership.

3) You also have the right to practice or exercise considerable power or influence in ways except through direct ownership.

4) You are supposed to possess a 'right or authority' straight in the company under the SBO Rules if the shares indicating such permission or rights are held in your name. 

5) And if you possess or obtain a beneficial interest in the shareholding and have made the necessary statements to the Company under the Companies Act.

Who is beneficial owner must be clear to you now.

Back in 2013, the Reserve Bank of India released a notification highlighting that banks and financial institutions must confirm the details of beneficial owners and verify their identification to curb money laundering. From that notification we learnt who is beneficial owner. 

A beneficial owner is someone who “ultimately owns or controls the client and/or the person on whose behalf the transaction is being conducted, and includes a person who exercises ultimate effective control over a juridical person.” 

I hope now you understand what is a beneficial owner. Let us take a look at norms stated by the RBI and SEBI to identify beneficial owners.

If a person exercises control through ownership or controlling interest through ownership, in that case he shall have:

• More  than  25%  of  shares  or  capital  or  profits  of  the  juridical person (here, company)

• More than  15%  of  the  capital  or  profits  of  the  juridical  person (here, partnership) 

• More than 15% of the property or capital or profits of the juridical person (here, unincorporated association or body of individuals)

In this case, a person may also exercise control through voting rights, agreements, arrangements or any other manner. Another scenario can be that the person holds a senior management position.

If a client is a trust then the intermediary shall be identified as the beneficial owner. 

These are the ways the identity of beneficial owners is determined. These beneficial owners are responsible to verify the identity of persons, individuals and trusts. 

I hope who is beneficial owner and how to identify beneficial owners is clear to you now.