Beneficial Owner

Glossary Entry

A beneficial owner of a security is a person or entity that directly or indirectly holds economic or control interests in that security, even if the legal title is held by another party (such as a broker or custodian). Under U.S. securities law, this determination depends on whether the person has voting power or investment power over the security or the opportunity to profit from changes in its value. The concept of beneficial ownership applies in multiple SEC reporting contexts, including Section 16 insider reporting and Schedule 13D/G beneficial ownership reporting. (Cornell Law School)

Direct and Indirect Ownership:

  • Under Rule 16a-1(a)(1) for Section 16 purposes, a beneficial owner is any person who, directly or indirectly, through contracts, arrangements, understandings, relationships, or otherwise, has or shares ownership of a security. The rule specifically instructs that indirect beneficial ownership can include “the opportunity…to profit or share in any profit derived from a transaction in the subject securities.” (Cornell Law School)

  • Under Rule 13d-3 for Sections 13(d) and 13(g) reporting, a beneficial owner is any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or shares:

    • Voting power (the power to vote or direct the voting of a security); or
    • Investment power (the power to dispose or direct the disposition of a security).
      This rule also provides that rights such as options exercisable within 60 days, and certain contractual arrangements, can confer beneficial ownership for reporting purposes when they provide meaningful control or influence. (Cornell Law School)

Registered Owner vs. Beneficial Owner:

A registered owner holds legal title to the security as recorded with the issuer or its transfer agent, often acting as a custodian or broker. A beneficial owner is the person or entity that benefits economically from the security or controls its voting or disposition even if they are not listed as the record holder. This distinction underlies why beneficial owners must file certain SEC reports while record holders may not for the same security. (Investor)

Regulatory Context — SEC Reporting:

  • Section 16(a) Reporting: For purposes of insider reporting under Section 16(a) of the Securities Exchange Act of 1934, a person is a beneficial owner if they meet the direct or indirect ownership criteria of Rule 16a-1. A person who is the beneficial owner of more than 10 % of a class of equity securities registered under Section 12 is subject to insider reporting forms (Forms 3, 4, and 5) alongside officers and directors. (Federal Register)
  • Schedules 13D and 13G: Under Sections 13(d) and 13(g), any person or group that becomes the beneficial owner of more than 5 % of a class of equity securities registered under the Exchange Act must file a Schedule 13D or 13G reporting beneficial ownership. The threshold and reporting requirements for these schedules are established by Rule 13d-1 and defined through Rule 13d-3. (Investor)

Examples of Beneficial Ownership Situations:

  • Shared Voting or Investment Power: A shareholder who has the power to direct how votes are cast or how the security is sold or traded is a beneficial owner, even if their shares are held by a broker. (Cornell Law School)
  • Options and Derivative Rights: Under Rule 13d-3, a person holding convertible or exercisable options that would result in beneficial ownership within 60 days is treated as a beneficial owner for Schedule 13D/G purposes. (Cornell Law School)
  • Contracts or Arrangements: Arrangements — such as trusts or pooled voting agreements — that give a person meaningful control over voting or investment decisions of equity securities also establish beneficial ownership. (Cornell Law School)

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