If a natural person owns 25% or more of a company, then he or she is a beneficial owner. For example, if three people each directly own 33% of a company, then each individual is a beneficial owner. However, where a company is owned by other companies (or other corporate entities), indirect ownership must be identified.
For example, Big Corp, Inc. opens a business VCR account. Big Corp’s ownership structure is as follows:
- Kathy Smith, an individual, owns 25%
- Jane Lee, an individual, owns 25%.
- Small Corp, Inc., a corporate entity, owns 50%.
The customer due diligence rule requires the identification of any natural person who owns 25% or more of a company. Therefore, both Kathy Smith and Jane Lee must have their information collected and verified.
In our example, we must also extend our examination into the ownership structure of Small Corp, Inc. Small Corp’s ownership structure is as follows:
- Michael Doe, an individual, owns 50%
- Several other individuals, who each own less than 10%
Michael Doe owns 50% of Small Corp, which owns 50% of Big Corp, which means that Michael Doe indirectly owns 25% of Big Corp. As a natural person who owns 25% or more of Big Corp, Michael Doe is a beneficial owner of Big Corp, and his information must be collected and verified as well.