Business Mirror

Atty. Mabel L. Buted discusses the concept of beneficial ownership of shares and the importance of disclosing information pertaining to the beneficial owners of a corporation to promote transparency...

Beneficial Ownership of Shares

By: Atty. Mabel L. Buted

The owners of a corporation are called stockholders. They are called stockholders because, in the literal sense, they should hold and own at least one share of stock to become owners. As owners, the power to control over the conduct of the business and affairs of the corporation are lodged in their hands. They vote through their shares to exercise control. As owners, they are the ones who also realize the profits earned by the corporate entity.

Sometimes, however, those who appear as stockholders and owners in the books are not the ones actually in control. One may own a share of stock but only to hold it in trust for or for the benefit of another person. One may hold a stock but exercises no right accompanying that share ownership, such as the right to vote and the right to receive dividends. The legal ownership and the beneficial ownership of shares may, thus, be held by not the same person. In a similar manner, it may appear that a company is held by different owners, but is, in the most real sense, owned only by one and the same person, because the stockholders hold the legal title over the shares only in favor of that same person.

To other stakeholders, especially the public, who put their trust in the people who actually run the business of the entity, it is very important for them to know who the owners are. Our government also acknowledges the risk of abuse and misuse of corporations in money laundering, terrorist financing and other illegal activities that may arise from lack of transparency of information relating to the beneficial owners. Thus, our government has implemented reforms to promote transparency in the beneficial ownership of corporations – an initiative which I fully support.

The Securities and Exchange Commission (“SEC”) requires all registered corporations, domestic and foreign stock and non-stock corporations to disclose in their Annual General Information Sheet (“GIS”) information about their beneficial owners.

A beneficial owner is the natural person who (a) ultimately owns or controls the corporation or (b) exercises ultimate effective control over the corporation, even if on paper, he does not have any legal title or does not appear as the legal owner. He or she can be identified through the percentage of ownership or interest in the corporation. One who owns, either directly or indirectly or through a chain of ownership, of at least 25% of the voting capital, may be considered a beneficial owner. Anyone who exercises control over the corporate entity through other means (such as through a contract; or through having the ability to elect or instruct or direct the Board of Directors, or to exert dominant influence in the management or policies of the company) is also a beneficial owner. A beneficial owner can also be a natural person who acts as steward of the properties of the corporation. Those who are responsible for the strategic decisions that fundamentally affect the business practices or general direction of the corporation, such as the members of the Board of Directors or those exercising executive control over the daily or regular affairs of the corporation, may be considered the beneficial owners.

The following information on the beneficial owner are required to be disclosed in the Annual GIS: (a) complete name; (b) specific residential address; (c) date of birth; (d) nationality; (e) Tax Identification Number (“TIN”) or passport number for foreign individuals who do not have a TIN; and (f) percentage of ownership, if applicable. The Annual GIS, containing these information, must be submitted not later than 30 days from the date of actual regular stockholders’ or members’ meeting. Any changes in the information relating to the beneficial owners must also be reported to the SEC within 30 days after such change occurred. Corporations who fail to disclose may be fined with penalties ranging from P25,000.00 to P2,000,000.00 in amount, depending on the number of violations and in the amount of retained earnings or fund balance in a given year.

The SEC also requires all nominee shareholders as well as nominee directors/trustees of registered corporations to disclose their nominators and principals or persons on whose behalf they act as such shareholders/directors/trustees. They must disclose these information within 30 days from the time they assume the role. Otherwise, for failure to comply, the SEC may impose fines (from P5,000.00 to P2,000,000.00) or suspend or revoke the registration of the corporation.

The SEC has the power to verify the beneficial ownership information disclosed through on-site inspection of the books and records of corporations and through the use of third-party information.