In the last few decades, we've seen a rise in business and financial transparency measures being implemented across the globe.
Efforts to prevent tax evasion, corruption, money laundering and the financing of terrorism have become prominent as more and more countries now require legal entities in their jurisdiction to disclose the ultimate beneficial owners behind their corporate structures.
But what exactly is an ultimate beneficial owner, and how can entrepreneurs comply with its mandatory disclosure requirements?
An ultimate beneficial owner (UBO) is a person who directly or indirectly owns, controls or benefits from a business.
If companies are known to have "branches", you could say that the ultimate beneficial owners are something like the roots.
In concrete terms, a person is an ultimate beneficial owner if:
The logic for the disclosure of UBOs is that of a chain, with the goal of getting to the very last level of who's behind a corporate structure. If your company has an entity shareholder that's above the disclosure threshold, you'll also have to provide visibility to its beneficial owners until you get all the way to the end of the chain.
For the sake of an example, let's say you decided to incorporate your company as a Cayman sandwich to be able to raise capital from international VCs. The last level of disclosure should look something like this:
Not all legal entities are subject to mandatory disclosure, and VC funds are typically exempt: this means that when disclosing your company's UBOs, you won't have to ask your investors for their information.
The answer depends on where you're based but, if you're in Latin America, odds are you're subject to mandatory disclosure laws in your country; most countries in the region have their own legislation and definitions in place, and the percentage of ownership required to make disclosure mandatory can vary from 5% in Colombia to 25% in Brazil.
If you're planning on opening a company, make sure to look into your jurisdiction's requirements before starting the process, as some countries will apply sanctions if you fail to disclose your UBOs within their given timeframe.
Yes. If you're in a jurisdiction where UBO disclosures are mandatory, any changes that impact your list of ultimate beneficial owners need to be reported to the authorities.
Examples of changes that might result in the need for a new UBO disclosure filing are:
Brazil has one of the most robust systems in the region when it comes to UBOs, with a clear-cut definition of who's mandated to disclose and a process that can be conducted 100% online.
All Brazilian and international non-resident entities enrolled in the National Company Registrar (CNPJ) are subject to mandatory disclosure of information on their corporate chain up to the UBO.
Brazil's legal definition of an ultimate beneficial owner is:
The process of filing a disclosure can be done in-person through government agencies or through an online form in the National Collector (Coletor Nacional) platform, and is subject to validation and approval. Counting from the date of the CNPJ registry, companies have up to 90 days to disclose their UBOs to the local authorities.
Latitud Go customers will have their disclosure filings taken care of as part of their company formation, and will have nothing to worry about; if you've incorporated on your own or with third-party help, we highly recommend seeking legal counsel to assist with the filings.
Let's just say you really don't want to skip it. For instance in Brazil, failure to comply with the terms of mandatory disclosure can result in the suspension of the CNPJ, and can prevent distributions of dividends and transactions with financial institutions such as operating bank accounts, making financial investments & signing loans.
All of that to say that if you don't disclose your company's ultimate beneficial owners, the government can prevent you from making any money movements on behalf of the company, and that's less than ideal for your operations.