What is the difference between a registered shareholder and a beneficial shareholder?

It is important to know the difference between the types of shareholders. Why? Because they help the company communicate effectively and aid in strategic decision-making during any major decision within the company.

As a company owner, you know that shareholders are the important reason a business grows, as they provide the necessary capital. There are various types of shareholders in a company. Each category will have different roles and responsibilities, influencing the company’s direction and policies.

Two important shareholder types among the many are registered and beneficial shareholders. These two have different voting rights, dividend receipts, and access to corporate communication. The article below focuses on explaining the concept and the key difference between registered shareholders and beneficial shareholders.

What are registered shareholders?

Registered shareholders maintain shares directly with a company. Registered shareholders’ names and addresses are recorded in the company’s share registry, typically kept up to date by its transfer agent. The key details listed for each registered shareholder typically include:

• Full name(Individual/company)
• Mailing Address
• Number of shares Owned
• Class of shares(Common, preferred)

Registered shareholders either have an electronic position of shares directly with the issuer or a stock certificate. Registered shareholders or record holders can receive information about investors, dividends, and corporate communication straight from the company. A person or an entity can elect to become a registered shareholder even if they purchase the shares through a broker.

Legal rights and responsibilities of registered shareholders

Legally speaking, the shareholder is the shareowner in direct possession. Most prominent transfer agents provide online access to registered shareholders’ holdings. The issuer may communicate with its shareholders directly and have real-time visibility of them.

Registered shareholders have the right to get a proxy and vote directly at annual meetings, receive dividends, give others ownership of their shares, and view specific corporate records. Also they have greater access to a company’s records and the ability to voice out during a merger than beneficial shareholders.

Importance of registered shareholders

Registered shareholders play a major role through their direct voting rights in important corporate decisions. They have the right to elect the major company positions, proving their say in the company.

Registered shareholders will receive all the financial reports, notices of meetings, and proxy statements directly from the company, ensuring transparency, and the shareholders will know what the company’s overall performance is up to.

What are beneficial shareholders?

Beneficial shareholders enjoy the share ownership benefits even if the title of the shares is in someone else’s name. Generally, the beneficial shareholders hold the company shares through a broker-dealer or bank. The entity with the shares on behalf of another person is called a nominee shareholder, and the one who gets the actual share benefits is a beneficial shareholder.

Financial rules define a beneficial owner as any individual holding a 25% or more share in a company or legal entity. Furthermore, trusts holding 25% or more of an entity or anyone having a major influence in the direction or management of such entities qualify as beneficial shareholders.

Roles and responsibilities of beneficial shareholders

In the case of company voting, beneficial shareholders will receive the “voting instruction form” that instructs them on how to vote their shares through their brokerage firm or other financial institution. If the brokerage holds the share on behalf of another person, it is known as shares held in “street name”. You give the brokerage firm (or bank or custodian) instructions, and they cast your proxy vote with the company.

Beneficial shareholders, such as the general counsel or CEO, normally hold senior positions in the company and have the right to appoint or remove board members, senior officers, and others in comparable positions. They can also decide on crucial company operations, finances, and/or organizational structure issues.

Beneficial shareholders are the real shareowners, who have the right to receive all the gains and earnings from the shares. In sales or share disposition cases, the beneficial shareholders can decide about the shares.

Importance of beneficial shareholders

Beneficial shareholders benefit from the company’s shares, though they are in the “street name” through brokerage. As beneficial shareholders have a stake in the company, they can make a difference in its operations through voting rights.

Beneficial shareholders can influence the company’s governance by electing board members and voting on other important decisions impacting the company’s strategy and decision-making process. They also help diversify the shareholder portfolio, mitigating the company’s potential risk.

Can a shareholder be both registered and beneficial?

Yes, a shareholder can be registered and beneficial, meaning the individual or organization named on the company register also benefits from and bears ownership obligations. This is common, especially in closely held corporations where the number of shareholders is limited.

In cases where a company does not have intermediaries, such as brokers or custodians, an individual whose name is on the company’s register can also enjoy the benefits of share ownership. A single individual can simultaneously be both the registered legal owner and the beneficial owner of shares if they hold the shares directly in their own name for their own benefit.

Key differences between registered and beneficial shareholders

The following are some of the major differences between beneficial and registered shareholders:

Legal Ownership vs. Economic Ownership

Registered shareholders are the legal owners of the company. Their name appears in the company’s shareholder register, and they hold the actual share certificates.

Beneficial shareholders benefit from the company’s shares held by someone else. This means they have economic ownership of shares, and their names do not appear in the company register. Instead, a nominee holds shares owned by a brokerage or other entity.

Voting Rights and Proxy Voting

Registered shareholders have direct voting rights in the company. They receive proxy materials directly from the company and can vote in person or by proxy at the yearly meeting.

Beneficial shareholders are not the direct shareholders of the company, but they can instruct the brokers or entities to vote on their behalf. The nominees will vote on the company’s affairs per the beneficial owner’s direction.

Disclosure Requirements and Reporting Obligations

Registered shareholders have direct reporting obligations in the company in which they have shares. Companies frequently have to disclose information about their registered shareholders, which includes keeping an updated member list including names, addresses, and share counts. Reporting requirements, such as:

• Revealing substantial shareholdings or
• Ownership changes

Beneficial shareholders might not have to disclose as much as registered shareholders because their names might not be on the company’s register of members. However, depending on the jurisdiction, law or regulation may require nominees and custodians to report beneficial ownership.

Account Management

Registered shareholders can directly contact the company’s transfer agent for account-related inquiries, updates (e.g., address changes), or share transfers.

Beneficial shareholders must go through their broker or bank for account-related matters, as the transfer agent does not have access to their account details:

Share transaction

Registered shareholders can directly instruct the transfer agent to transfer or sell their shares, or they can use a broker.

Beneficial shareholders typically buy, sell, or transfer shares through their broker or bank account.

How can Eqvista help issue and manage shares?

Knowing the key difference between registered shareholders and beneficial shareholders can benefit better corporate management. Beneficial shareholders operate through nominees, while registered shareholders have direct control. Hence, their responsibilities and effects on the company’s operations are different.

A business must issue and manage shares before learning about these shareholders. This is when Eqvista can be beneficial. We have a smooth process to guarantee transparency and eliminate complex procedures.

Easy-to-use cap table software allows you to issue, monitor, and control company shares in compliance with legal requirements. With the help of our additional tools, such as round modeling and a waterfall analysis, you can also make wise business choices regarding your next investor round. Get in touch with us now to learn more about how Eqvista can help you manage the shares of your business!