The beneficial owner: definition, identification and entities concerned

Transparency has become an increasingly important requirement in the business world. In this context, and in particular in the fight against money laundering and the financing of terrorism (AML/CFT), one concept has taken on considerable importance for many companies: that of "beneficial owner". Do you run a company, association or other structure? Understanding who this beneficial owner is and whether your entity is required to identify him or her is an essential first step in navigating these regulatory obligations. This article aims to shed some light on these fundamental points. For a quick overview of all the key obligations relating to the register of beneficial ownersSee our simplified guide.

Who is behind the term "beneficial owner"?

The idea behind the notion of beneficial owner is simple on the face of it: it is a question of knowing who actually control or benefit from a legal structure, beyond appearances or sometimes complex arrangements. The law gives us a more precise definition.

The fundamental principle: always a natural person

The Monetary and Financial Code is clear: the beneficial owner is always one or more natural persons. Article L. 561-2-2 defines it as the natural person who ultimately either owns or controls, directly or indirectly, the client entity, or the entity for which a transaction is carried out or an activity carried out. So forget parent companies or holding companies as ultimate beneficial owners; the aim is to identify the individual or individuals pulling the strings or reaping the benefits at the end of the chain.

Criteria for identifying a company's beneficial owner

For companies, which represent the majority of cases, the regulations provide precise criteria for identifying the beneficial owner(s). These criteria are not alternatives; they must be examined in order. Article R. 561-1 of the Monetary and Financial Code sets out these procedures in detail.

The first criterion is the ownership of capital or voting rights. A beneficial owner is considered to be any individual who directly or indirectly holds.., more than 25% of capital or voting rights of the company. This threshold of 25% is the first indicator to be checked. The holding may be direct (the person owns the shares themselves) or indirect (they own them via one or more other companies they control).  

If no one exceeds this threshold of 25%, or if this criterion alone does not reflect the reality of control, the second criterion is examined: the exercise of a power of control over the company. by any other means. What does this mean in practice? The law refers here to certain definitions of control in the French Commercial Code (in particular article L. 233-3). This can cover several situations:

• A person who "in fact determines decisions at general meetings through the voting rights he or she holds". Think of a minority shareholder who, because the rest of the capital is dispersed or because of a shareholders' agreement, is able to impose his or her views.
• A person who has the power to appoint or dismiss the majority of the members of the management bodies (managers, members of the board of directors or supervisory board, etc.). This power may derive from the company's articles of association, an agreement or a de facto situation.

This second criterion therefore covers situations where a person, without necessarily holding a significant proportion of the capital, exercises a decisive influence over the management and decisions of the company.

Finally, what happens if, after examining these two criteria, no natural person can be identified as exercising control? Provided there is no suspicion of money laundering. Only in this case do the regulations provide for a "default" solution, as specified in paragraph 2 of Article R. 561-1 of the Monetary and Financial Code. The beneficial owner is then considered to be the legal director(s) of the company. Depending on the form of the company, this will be :

• Manager(s) (for SNCs, SCSs, SARLs, non-trading companies).
• The Chief Executive Officer (for public limited companies with a Board of Directors).
• The Chairman of the Management Board or the sole Managing Director (for public limited companies with a Management Board and a Supervisory Board).
• The Chairman and, where applicable, the Managing Director (for SASs).

If the legal representative is itself another company, we will then go back to the natural person who manages that company. This default designation is a solution of last resort to ensure that there is always an identified natural person.

What about other legal forms?

The legislator has laid down specific rules for other types of structure. Without going into excessive detail here, you should know that specific criteria also exist for :

• Collective investments (UCITS, FIA, etc.): the rules are similar to those for companies, with regard to share ownership or control over the management company (article R. 561-2 C. mon. fin.).
• Associations, foundations, economic interest groups The criteria include ownership of more than 25% of the "capital" (if applicable), the right to become a shareholder, the power to appoint/revoke directors, or control by other means. Failing this, the legal representatives (president of the association, etc.) are appointed (article R. 561-3 C. mon. fin.).
• Trusts The identification covers the settlor, the trustee, the beneficiary and, where applicable, the protector (Article R. 561-3-0 C. mon. fin.).

These structures are not therefore outside the scope of the directive, even if the identification procedures have been adjusted.

Beware of complex situations: points that raise questions

Despite the clarifications provided by successive texts, certain situations remain tricky to analyse in practice. Two points deserve particular attention.

Firstly, how to calculate indirect ownership for the 25% threshold? Imagine a person A who owns 50% of a company B, which itself owns 50% of a company C. Is A the beneficial owner of C? Do the percentages have to be multiplied (50% of 50% = 25%, so A does not reach the threshold)? not the more than 25%)? Or consider that as soon as A controls B (with 50%), it indirectly controls what B holds (i.e. C's 50%)? The first method, known as the "product of holdings" method, is the one generally favoured by the supervisory authorities (such as the ACPR and the AMF) in their past guidelines. The second, known as the "cascade" or control method, is less often used in this specific context. In the absence of explicit legal clarification on the calculation method, prudence often dictates following the regulators' approach (product of holdings) and documenting its calculation. In doubt? Better to consult.

Secondly, what if a listed company in the chain of ownership? We will see later that listed companies are exempt from the obligation to declare their own beneficial owners. But does this mean that the search stops if we "come across" a listed company in the shareholding of an unlisted company? Logic and the objective of transparency suggest not. The listed company's exemption from reporting should not block the identification of the beneficial owner final the unlisted company, which remains subject to the obligation. In principle, therefore, it is still necessary to find out who controls the listed company in order to identify the individual at the end of the chain. However, obtaining this information can be complex. Here again, the situation merits careful analysis.

Is your company affected by these obligations?

Now that the concept of the beneficial owner is a little clearer, the next question is: is your structure subject to the obligation to identify and declare it? Once this identification has been carried out, it is essential to understand the practicalities of the official declaration of your beneficial owners to the Registre du Commerce et des Sociétés (Register of Companies).

A very broad field of application

The answer is yes for the vast majority of legal entities registered in France. Article L. 561-45-1 of the Monetary and Financial Code explicitly refers to :

• Companies with their registered office in France and legal personality (SARL, EURL, SA, SAS, SASU, SNC, SCS, SCA, non-trading companies such as SCI, etc.).
• Economic Interest Groupings (EIGs).
• Foreign commercial companies with an establishment in France.
• Other legal entities whose registration is required by law (for example, European Economic Interest Groupings - EEIGs - with their registered office in France).

The legal form does not matter, as long as the entity is registered with the Registre du Commerce et des Sociétés (RCS).

The recent extension to all associations and foundations

A major change occurred with the law of 22 April 2024 (known as the DDADUE law). Whereas previously only certain associations (those that issued bonds and had to register with the RCS) were concerned, the obligation to identify and retain information on beneficial owners has now been extended to all associations. extended to all associations governed by the law of 1901, as well as to foundationsto endowment funds and sustainability fund. These organisations will have to declare this information in addition to their other reporting obligations, via specific registers (such as the national register of associations). For a traditional association, the beneficial owner will very often be its president or principal legal officer. This is a significant change for the not-for-profit sector.

The major exception: listed companies

There is one important exception to this broad scope: the companies whose shares are admitted to trading on a regulated market in France, in the European Economic Area, or on a foreign market imposing equivalent transparency obligations, are excluded of this system for identifying and declaring beneficial owners (Article L. 561-45-1 C. mon. fin.). The reason? It is considered that the disclosure and transparency obligations already incumbent on these companies (crossing of thresholds, information on directors, etc.) already provide sufficient visibility of their shareholding and control. However, this exemption only concerns the listed company itself, not necessarily its unlisted subsidiaries.

Identifying the beneficial owner is a key step, but it is part of a broader framework. To better understand all the implications, particularly in terms ofaccess to information, penalties and new direct obligations for beneficiaries It's essential to stay informed.

Correctly identifying the beneficial owner(s) of your structure is a fundamental step in ensuring your compliance. If you have any doubts about your specific situation, our firm can help you to analyse your control structure and provide you with a detailed report. expert, tailor-made legal support in commercial law.

Sources

• Monetary and Financial Code: in particular articles L. 561-2-2, L. 561-45-1, R. 561-1, R. 561-2, R. 561-3, R. 561-3-0.
• French Commercial Code: in particular articles L. 123-1, L. 233-3.
• Law no. 2024-364 of 22 April 2024 containing various provisions for adapting to European Union law (DDADUE).