Shareholding Structure Verification – A Crucial Step in KYB Protocols

Did you know that the U.S. SEC recently accused the China-based QZ Asset Management and its CEO of defrauding its clients of at least $6 million? 

According to the SEC, the enterprise used false promises and deceptive practices to get money from the investors. This case highlights the significance of being cautious and verifying the credibility of a firm’s shareholding structure. Let’s explore the role of a company’s ownership system and how the KYB verification method can secure your business future. 

What is a Shareholding Structure?

A shareholding structure refers to the composition typically described by its shares. It explains who the shareholders are and how many shares, how many shares, or what proportion of the company they hold. It plays an important role in understanding the distribution of power, decision-making authority, and profits in the business.

The Role of Shareholders in Shaping Company’s Decisions

Shareholders hold the central position and influence the company’s decisions, serving as its owners with equity stakes. They have a substantial impact on corporate actions. The recent Disney and Nelson Peltz’s Proxy Fight (2023 – 2024) is one of the compelling examples of this dynamic in action.

Disney and Nelson Peltz’s Proxy Fight 

Nelson Peltz, a prominent activist investor with his company Train Partners, launched a proxy battle in order to secure a seat on Disney’s board of directors. Peltz’s critical analysis of Disney’s strategic direction highlighted poor cost management, questionable strategic approaches, and shareholder value concerns. To address these concerns, Disney took significant steps, including:

• Cost cutting measures 
• Layoffs to streamline operations

These measures were perceived as a response to Peltz’s campaign which led him to end the initial proxy fight. Therefore, the example illustrates the influential role of shareholders in shaping a company’s direction and underscores that shareholders can act as a catalyst for change. With the equity position, they can push companies to make decisions and improve financial performance.

Direct Vs. Indirect Ownership

Like shareholders in business, ownership also refers to the authority of an entity or a person who has control of the company’s activity. It includes both direct and indirect ownership. Direct owners are the entities who directly own shares in a business; for instance, if an individual owns 20% of the shares in a company, he will become the direct owner. 

However, on the other hand, a person will be an indirect owner if a firm in which he has shares owns another firm. Looking at its example, if Company B is owned to the extent of 20%  by Company A, while Company A is owned to the extent of 50% by a natural individual, then the person is said to be the indirect owner of Company B through Company A, making him an owner of 10% of shares in Company B(50% of 20%).

Importance of KYB Process in Company Ownership Structure 

It is important to comprehend the company ownership structure as it allows the business to comply with AML and CTF regulations and the requirement to verify UBOs.  Involving the KYB process helps an organization gather and analyze multiple pieces of information regarding a company and its ownership structure. 

The procedure of determining ownership structures can be challenging, specifically with complicated systems. Such scenarios include using entities like holding corporations and trusts to conceal beneficial ownership information.  Therefore, the primary question is how to identify these BOs and their complicated ownership structure. 

Identify the Ultimate Beneficial Owner with Several KYB Methods

Understanding the business structure includes learning everything related to the company’s owners and their activities in the firm. Therefore, to trace and analyze the ownership chain, use the following methods for UBO verification.

• Legal Document Verification

Legal documents include confirmation statements, operating documents, articles of association, income statements, and annual returns. These documents contain the individual’s details and the company’s shareholding structure, which helps the firms confirm entities and their ownership structures while preventing fraud and identity theft. The KYB provides real-time data extraction for accurate KYB checks.

• Corporate Screening 

The crucial defense mechanism helps with identifying associated shell companies and provides proper corporate screening against AML regulations. It ensures that all businesses and their ownership structures adhere to the regulatory authorities. Moreover, the KYB checks have various databases, including sanction lists, watchlists, and adverse media lists, that help firms learn the status of registered business entities.

• Due Diligence Questionnaire

One of the essential parts of the KYB process is to complete the due diligence questionnaire. Companies are required to provide details that include identity information, wealth sources, and potential concerns of regulations. It helps in investigating businesses and associated parties to spot risky signs leading to further scrutiny.

• Third-Party Verification

The KYB checks use real-time data from private and public databases that aggregate and analyze information about the companies and business entities. These resources assist in discovering the beneficial ownership information and the company’s shareholding structure.

• Government and Public Record Checks

KYB verification includes cross-referencing data with government databases or UBO registers that are available in corporate filing, court documents, or regulatory disclosures. These public records are leveraged for verifying tax records, financial filings, and business registries.

Identify Shareholding Structures with The KYB

Verifying the shareholding structure is not just a regulatory requirement but also a keystone of responsible and sustainable growth in the B2B market. By understanding the ownership structure, a company can encourage trust and ensure transparency. It will further help businesses comply with regulations and combat reputational and financial risks. Take the first step towards stronger compliance and control your business’s future with a streamlined shareholding verification solution. THE KYB offers a proprietary registry network that extracts shareholding information in real time.

Whether you are a startup or a global enterprise, simplify your beneficial ownership identification(BOI) with accurate, up-to-date, and legally authoritative results with every search. Moreover, minimize your cost and stay compliant with global KYB and AML regulations while boosting security by strengthening due diligence within the business operations.