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What is Beneficial Ownership?
Mary McMahon
Mary McMahon
Beneficial ownership is a form of ownership in which someone retains the benefits and responsibilities of ownership, but not the actual title. It comes up in a number of different contexts. The law surrounding beneficial ownership varies, and in arrangements which deviate from standard practices, it can be wise to consult a lawyer for advice. A lawyer can also assist with drawing up a contract which clearly defines the relationships of all parties involved.
In a simple example of beneficial ownership, when people make arrangements with a brokerage firm, the firm becomes the beneficial owner of the stocks and securities of the customer. It is allowed to execute trades on behalf of the customer, to buy and sell, and to make other decisions related to the securities. However, the firm does not hold the title to the securities, with the title resting in the hands of the client.
Likewise, the owner of a copyright could assign some of the rights to a beneficial owner by arrangement. There are many cases in which this is done in both express and implied agreements. The copyright holder still owns the copyright, but the beneficial owner can use it like his or her own, and may make decisions involving how and where the copyright is utilized.
In the financial world, beneficial owners may be required to report their status. The term “beneficial owner” can also refer to people with a voting or controlling share in something, including groups of people who share ownership. They are required to report that they are beneficial owners in the interests of full transparency, so that other people understand how decisions are made and who can be involved in decisionmaking. When there is a change in beneficial ownership, this must be reported as well.
Beneficial ownership involves an implied duty as a trustee. The beneficial owner does not hold the title to the property, but is expected to treat it responsibly, and to handle it as though it were his or her own. Failure to care for the property properly can result in legal and financial penalties, as the nominal or official order can argue that the beneficial owner abused his or her position. People who are not clear about their ownership relationship to something should discuss the situation with a lawyer to make sure that they discharge any responsibilities properly, and to avoid being held legally liable for failure to perform.
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
Learn more...
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
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Discussion Comments
@jmc88 - Beneficial ownership and equity ownership really aren't related at all. The article does a good job explaining what beneficial ownership is. Someone wants someone to have the ability to manage some piece of their property for whatever reason.
Equity ownership is more like when you have ownership shares in a company. Equity is basically the amount of money that is left over in a company after all of the costs and expenses are removed. Obviously, a company with high equity is doing well. One with poor equity may not necessarily be doing bad, but would probably be considered to be in a riskier situation.
Equity ownership is how much of that equity you own. An example I know of is for an electric co-op. Everyone who gets electricity from that company pays a premium for the service and they try to make a profit. Depending on your share of the company, your equity ownership is equal to that proportion of the company's equity.
That's just the best quick explanation I can think of, but hopefully it clears it up.
I have heard of equity ownership before, but I'm not exactly sure what it is. Are equity ownership and beneficial ownership the same thing, or are there differences?
In what type of situation would you give beneficial ownership of a copyright? Would this be common if you were working at some type of company or with a business partner, and it would be necessary for that person to make changes to the design?
Another unfortunate scenario I can think of is if you had the copyright to a design that needed improving, but you were in an accident or got sick and wanted someone else to be able to modify the design later on.
Whenever someone is given beneficial ownership, do they have to sign some sort of contract explicitly stating that beneficial ownership is occurring, or is it something that is just implied given the arrangement?
I've never invested through a brokerage firm, but whenever you do that, do you sign a piece of paper saying they are a beneficial owner of your stocks?
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