What is Beneficial Ownership? 

Beneficial Ownership refers to the ownership structures of legal entities such as companies or trusts. When establishing beneficial ownership, one is establishing exactly which individual benefits from the privileges associated with ownership of a legal entity. 

Sometimes, the actual owner of a company is not the same individual under whose name the company’s title is listed on paper. In other words, although the title for Company X may be under the name of Mr Allen, Company X may actually belong to Mrs James. In this case, Mrs James is the beneficial owner. 

When an individual is a beneficial owner, they will enjoy many privileges associated with ownership even though the title to the property in question is under someone else’s name. For example, even though Company X is not under Mrs James’s name, Mrs James may nevertheless enjoy a significant share of managerial authority over Company X and take a sizeable share in its profits. 

Establishing the beneficial ownership of an entity can be challenging. Ownership structures may be designed to be highly convoluted and complex – either legally or illegally so – for several reasons. It should be noted that beneficial ownership structures are legal, so long as they are explicitly declared. 

When beneficial ownership structures are legally constructed, they are often done so to reduce unnecessary liability and increase convenience – for example, a bank or broker may hold the title of a trust or fund, for whom the beneficial owner is a high-net-worth individual. 

When beneficial ownership structures are illegally constructed, they are most often done so for money laundering and tax evasion. 

Difference Between Beneficial Ownership Investigations and Know Your Business (KYB) Checks 

Investigations of beneficial ownership structures are done to establish exactly which individual/group of individuals own a legal entity and enjoy the associated privileges of ownership. 

Investigations into beneficial ownership structures may be conducted during events such as asset evaluations, corporate takeovers and criminal investigations. Beneficial ownership structures seldom directly affect the day-to-day transactional relationships that an entity has with its customers or suppliers. 

KYB checks, on the other hand, refer to the day-to-day due diligence checks that are conducted to ensure that a business is legitimate and not malicious. In some instances, certain KYB checks are required by law, while at other times, KYB checks may be conducted at a business’s discretion as an effective means for risk assessment and risk mitigation. 

Examples of KYB checks include the verification of associated bank accounts, routine credit checks, and sanction checks designed to ensure that a business is not under an international embargo. 

How to Conduct KYB and Due Diligence on Businesses in South Africa 

In many situations, conducting due diligence checks on companies, institutions and organizations before conducting business with them is essential for assessing and mitigating risk, as well as ensuring regulatory compliance with a range of AML/CFT laws. 

In most instances, these checks will classify as Know Your Business (KYB) checks. Much like Know Your Customer (KYC) checks, KYB protocols will be used to verify the identity of a legal entity and validate associated information to ensure its legitimacy and integrity. 

There is a range of due diligence checks that may be conducted on a company…

• Business Registration Checks: In South Africa, one can verify the identity of a company and validate crucial information by using the business’s registration number to pull data from the Companies and Intellectual Properties Commission (CIPC). This KYB check can be crucial for validating the legitimacy of all information associated with a company and verifying that the entity you are dealing with is exactly who they say they are. 
• Director Lookups: If one wants to verify the identity of a company’s director, conducting a director lookup check will provide important identification information on the director in question.
• Company Credit Checks: As with individual customers, conducting a credit check on a company is crucial for ensuring not only that a business qualifies for a certain credit application, but also that the business is legitimate in the first place – a company’s credit profile can hold many clues as to the entity’s legitimacy and integrity. 
• AVS Checks: Account Verification Services exist as a form of data validation that establishes the validity of a bank account – an essential check that is done before depositing money and conducting business with an entity. 
• Company Sanctions Check: Sanction checks reveal whether a company is under international sanction/embargo. Any failure to conduct a sanctions check that then leads a business to illegally engage with a sanctioned entity can see severe penalties being imposed on the offending business. Consequently, sanctions checks are crucial for avoiding breaching international sanctions law and becoming embroiled in legal and public scandals. 

Company Registration Checks, Director Lookups and Due Diligence Services for South Africa 

As South Africa’s leading provider of identity verification, due diligence and risk management solutions, ThisIsMe provides world-class KYB solutions that can help your business secure its transactions and verify whom it does business with. To experience our full suite of solutions and find out how we can empower your business with class-leading tools, contact our team here.