What is a Beneficial Owner? Types, Identification & Examples

For financial institutions across the MENA region, there is an increasing need for accountability and transparency, but how can they adapt to a shifting landscape? The answer lies in moving beyond traditional compliance frameworks and embracing innovation in the identification of beneficial ownership.

What is a Beneficial Owner?

A beneficial owner is the natural person who ultimately owns or controls a legal entity, even if that ownership or control is exercised indirectly through layers of intermediary entities, nominees, or trusts.

According to FATF Recommendation 24, countries must ensure that competent authorities have access to adequate, accurate, and up-to-date information on the beneficial ownership of legal persons.

Ownership or Control — Either Qualifies

Under regulations like the U.S. Corporate Transparency Act (CTA) and FinCEN’s Beneficial Ownership Information Reporting Rule, a beneficial owner is defined as someone who:

• Owns or controls at least 25% of the ownership interests of a company (directly or indirectly), or

• Exercises substantial control over the company, even without holding a formal ownership stake.

This dual-pronged approach ensures that regulators and financial institutions can see beyond surface-level structures to identify the individuals with real influence or economic benefit.

What Constitutes "Ownership"?

Ownership can be direct (e.g., holding shares) or indirect (e.g., owning shares of a parent company that owns the entity). Ownership typically includes:

• Equity shares,

• Voting rights,

• Capital or profit interests,

• Convertible instruments,

• Any arrangement that provides a stake in the entity's assets or earnings.

What Constitutes "Control"?

Control refers to the ability to make significant decisions for the company, which may include:

• Serving as a senior officer (CEO, CFO, COO, general counsel),

• Having the authority to appoint or remove directors,

• Influencing or directing important corporate actions (e.g., mergers, major expenditures),

• Exercising control through contractual or informal arrangements.

• Even a person with no equity stake can be a beneficial owner if they have effective control.

What is Beneficial Ownership?

Beneficial ownership is the true essence of ownership and control, reflecting who ultimately benefits from and influences the operations of a legal entity, even if their name does not appear on official records. It is the person who reaps the economic benefits—like profits, dividends, and decision-making power—associated with ownership, despite the legal title being held elsewhere.

In other words, beneficial ownership refers to the right to enjoy the benefits of beneficial ownership of property or entity, even if legal title is held by another party. This includes:

Types of Beneficial Owners: Who Is Considered a Beneficial Owner?

Beneficial owners fall into various categories, depending on ownership structure and control mechanisms. Here’s a breakdown of the key types:

1. Direct Beneficial Owners: These are individuals who directly own at least 25% of a company’s shares or voting rights or have significant influence over the company’s operations.

The beneficial owner of an entity is the person who ultimately owns or controls it. Also, It is important to identify the beneficial owner of an entity for transparency purposes.

2. Indirect Beneficial Owners: These individuals control or benefit from the entity through another company or structure, such as a holding company or trust.

3. Control-Based Beneficial Owners: Not always equity holders, these are individuals who control or influence the company’s decisions, like senior executives or key decision-makers.

4. Beneficiaries of Trusts: People who benefit from assets held in a trust. The trustee holds legal title, but the beneficiaries are the true owners of the trust’s assets.

5. Nominee Beneficial Owners: These are individuals or entities that hold the legal title on behalf of the actual beneficial owner, often used to obscure the real owner’s identity.

6. Government or Institutional Owners: Public entities or governments that hold significant control or ownership, especially in state-owned enterprises (SOEs).

7. Minority Beneficial Owners: While holding a smaller percentage of shares, these individuals still wield significant influence over decisions, such as through veto powers or special voting rights.

When to Identify Beneficial Owners

The identification of beneficial owner is necessary under specific conditions. It typically triggers when:

• Onboarding corporate clients: To assess the risks and comply with KYC regulations.
  

• Conducting Enhanced Due Diligence (EDD): Especially for high-risk clients or transactions.
  

• High-risk jurisdictions or clients: Additional scrutiny is required for clients in regions prone to financial crimes.
  

• Structural changes in the corporate entity: Mergers, acquisitions, or restructuring can reveal new beneficial owners.

How to Identify a Beneficial Owner

Here’s a streamlined approach to identifying them:

1. Collect Legal Entity Documentation: Gather essential documents such as shareholder certificates and commercial registry records to understand the company structure and ownership.

2. Review the Shareholder Register: Start by checking the company's records for individuals holding 25% or more of shares or voting rights. These are often the direct beneficial owners.

3. Analyze Control: Ownership doesn’t always equal control. Look for individuals with decision-making power, such as executives, board members, or others who influence key company decisions.

4. Investigate Indirect Ownership: Beneficial ownership may be through holding companies or trusts. Investigate parent companies or trust beneficiaries to uncover the real owners.

5. Check for Nominee Ownership: Some use nominees (like lawyers or directors) to hold legal titles while the real owner benefits. Look closely at the nominee’s role and uncover who they represent.

6. Leverage Public Registers and KYC: Many jurisdictions now maintain public beneficial ownership registers. Cross-check this information with Know Your Customer (KYC) procedures for accurate identification.

7. Perform Enhanced Due Diligence: In cases of complex ownership or high-risk entities, carry out Enhanced Due Diligence (EDD) to trace ownership more thoroughly.

Beneficial Owner Information to Collect

MENA regulators, like the UAE Central Bank and Bahrain’s CBB, follow FATF-aligned requirements. Required data includes:

• Full name

• Nationality & residence address

• Sanctions & jurisdictional risk

• Date of birth

• Identity verification

• Type of ownership/control

• Regulatory reporting and risk rating

• Official documents (ID, Passport)

• KYC & recordkeeping compliance

Beneficial Ownership Examples: Different Types

In the below section, we discuss different beneficial ownership examples:

1. Beneficial Owner Example 1: Direct Beneficial Owner

Mr. A owns 40% of Company X registered in Jordan. He is clearly a direct beneficial owner.

2. Beneficial Owner Example 2: Indirect Ownership via Holding

Mrs. B owns 60% of Company A, which owns 30% of Company X in the UAE. Her effective ownership in Company X is 18%, which meets the jurisdictional threshold.

It is worth noting that beneficial ownership via a holding company or subsidiary is calculated by multiplying the ownership stakes. In this case, Mrs. B's effective ownership in Company X is calculated as 60% of 30%, which equals 18%.

3. Beneficial Owner Example 3: Trust-Based Ownership

In a DIFC-registered trust, Mr. C is the beneficiary and receives distributions from the underlying company. He is the beneficial owner under UAE laws.

What is the Beneficial Owner Rule?

The FinCEN Customer Due Diligence (CDD) Rule is enforced in the U.S. but it influences MENA standards. The Beneficial Owner Rule requires financial institutions to identify the true owners of a company or asset. The rule is designed to prevent crimes like money laundering and tax evasion by ensuring the real individuals behind businesses are known.

Regulations such as those from FATF and the EU (AMLD 4 & 5) mandate that institutions verify and report beneficial owners. In the U.S., the Corporate Transparency Act also requires such disclosures. Financial institutions must gather and verify beneficial ownership information as part of their KYC procedures, using documents like ID proof, shareholder registers, and corporate charts.

When Should You File Your BOI Report?

Regulations around Beneficial Ownership Information (BOI) reporting vary by country. Here’s a quick overview of how some countries address Beneficial Ownership (BO) reporting:

1. United States

As of February 27, 2025, the Financial Crimes Enforcement Network (FinCEN) has eliminated the requirement for U.S. companies and individuals to file Beneficial Ownership Information (BOI) reports under the Corporate Transparency Act. This means U.S. entities are no longer obligated to submit these reports. However, this change primarily impacts U.S.-based entities.

Foreign entities, however, remain subject to reporting requirements when doing business in the U.S. Here’s a breakdown of the filing timelines for these foreign entities:

1. Existing Foreign Entities: If the entity was registered before February 18, 2025, they must submit their BOI report within 30 days from that date.
   

2. New Foreign Entities: Any foreign entity registering in the U.S. on or after February 18, 2025, will have a 30-day period from their registration date to file their BOI report.

2. United Arab Emirates (UAE)

The UAE introduced regulations requiring companies to maintain and disclose Beneficial Ownership information as part of its compliance with FATF recommendations. In addition, authorities are moving toward public beneficial ownership registers.

• Businesses must file updated beneficial ownership information with the Department of Economic Development (DED) or through relevant Free Zone authorities.

• UAE companies are required to file their beneficial ownership details at the time of company registration and update their records annually or upon changes in ownership.

• Non-compliance with UBO reporting regulations can result in fines of up to AED 1,000,000, restrictions on business operations, and legal actions such as the suspension or revocation of the company’s license.

3. Saudi Arabia

Saudi Arabia introduced the Beneficial Ownership Regulations in 2020 as part of its anti-money laundering (AML) framework. Companies are required to disclose Beneficial Owners during registration with the Ministry of Investment (MISA). These regulations are also aligned with FATF recommendations to enhance transparency in the corporate sector.

Beneficial ownership details must be disclosed at the time of registration and updated whenever there are changes to the ownership structure.

The Role of Beneficial Ownership in Banking & Financial Institutions

Understanding beneficial ownership is central to:

• Performing KYC and CDD

• Risk profiling customers

• Complying with local AML regulations

• Preventing money laundering via legal structures

• Unveiling hidden ownership structures

• Building trust by identifying true controllers

• Assessing and managing ownership risks

• Promoting ethical business practices

Why Is Beneficial Ownership Identification Important for KYC Compliance?

• Transparency: Reveals actual persons benefiting from business relationships

• Sanctions Compliance: Essential for screening beneficial owners against OFAC/UN/EU lists

• Risk-Based Approach: Enables proper categorization of clients by risk level

• Legal Obligation: Mandated under FATF, national laws, and global bank policies

8 Common Challenges in Identifying Beneficial Owners

1. Complex multi-jurisdictional structures

2. Use of nominee shareholders or bearer shares

3. Opaque trusts and offshore arrangements

4. Lack of centralized registries

5. Deliberate obfuscation (fraudulent declarations)

6. Layered ownership structures

7. Inconsistent reporting standards across jurisdictions

8. Lack of transparency in private companies

Beneficial Owner Vs. Registered Owner

Final Thought

Historically, the region’s complex business structures, ranging from family-owned conglomerates to intricate offshore holdings, have posed challenges for regulators and financial institutions alike. Yet, this challenge also presents an opportunity. By embracing a comprehensive, data-driven approach to beneficial ownership identification, institutions can not only comply with evolving laws but also mitigate emerging financial risks like money laundering and tax evasion.

But there’s more at stake than compliance. In a region where economic diversification is critical for the future, the ability to uncover the layers behind financial transactions ensures that MENA markets remain competitive, transparent, and resilient. Every time a bank or financial institution verifies and understands its clients’ true ownership, they are also strengthening the region's reputation on the global stage as a trusted and robust financial hub.

Beneficial Ownership FAQs

Q1. Who is considered a beneficial owner?

A beneficial owner is an individual who:

• Owns or controls 25% or more of a company’s equity shares or voting rights, either directly or indirectly.

• Exerts significant influence over the company’s decisions, such as the ability to appoint or remove key executives or influence strategic direction.

In essence, beneficial owners are the individuals who derive the real economic benefit and power from ownership, even if the legal title is held by someone else.

Q2. Who does not qualify as a beneficial owner?

Those who are not beneficial owners include:

• Individuals who lack ownership or control of at least 25% of the entity.

• Nominees, who hold legal ownership on behalf of the true owner, but do not benefit financially or control the company.

• Trustees who manage assets on behalf of beneficiaries but do not hold a beneficial interest in the company.

In short, individuals without substantial control or ownership do not qualify as beneficial owners.

Q3. What is the threshold for a beneficial owner?

Typically 25%, but varies by country and risk level.

Q4. Can a company have multiple beneficial owners?

Yes. There may be multiple owners each holding a qualifying stake or control role.

Q5. Beneficial owner vs beneficiary: what’s the difference?

The key difference is that the beneficial owner controls or owns the asset, while the beneficiary receives benefits from the asset but doesn’t necessarily own or control it.