Category: Beneficial Ownership

25% Ownership Threshold

Also known as: Ownership Threshold, 25 Percent Beneficial Ownership Threshold, Ownership Prong Threshold

Simply put

The 25% ownership threshold is a benchmark used in some AML and corporate transparency frameworks to decide when an individual who owns part of a company must be identified as a beneficial owner. Generally, a person who owns or controls at least 25% of a legal entity may need to be identified and, in some cases, reported. The exact percentage and how it is applied can differ between jurisdictions and legal instruments.

Formal definition

The 25% ownership threshold is a quantitative trigger applied under certain beneficial ownership regimes to determine which natural persons must be identified through an entity's ownership (equity) interests, as distinct from control-based tests. Under the U.S. FinCEN Customer Due Diligence rule (31 CFR 1010.230), covered financial institutions must identify each individual who directly or indirectly owns 25 percent or more of the equity interests of a legal entity customer under the ownership prong; identification under this prong is not required where no individual meets that threshold, though the separate control prong still applies. A comparable 25 percent ownership-interest threshold is used under the U.S. Corporate Transparency Act framework for identifying reporting-company beneficial owners, where changes affecting who meets the threshold can trigger reporting obligations. Practitioners should note that the precise threshold value, whether it is expressed as "25% or more" or "more than 25%," and its interaction with indirect ownership, aggregation, and control-based criteria vary by jurisdiction and instrument, and exact application should be confirmed against the applicable regulation.

Why it matters

The 25% ownership threshold is a foundational reference point in beneficial ownership identification because it sets a bright line for when equity holders in a legal entity must be surfaced through the ownership (equity) prong of due diligence. For compliance teams, the threshold determines the scope of who must be identified and, in some frameworks, reported. Under the U.S. FinCEN Customer Due Diligence rule (31 CFR 1010.230), identification under the ownership prong is not required where no individual owns 25 percent or more of a legal entity customer, meaning the threshold directly governs how much of an entity's ownership structure a covered financial institution must unwind and verify. A comparable 25 percent ownership-interest threshold operates under the U.S. Corporate Transparency Act framework for identifying reporting-company beneficial owners.

The threshold also matters because it can be a structural weakness as well as a control. Commentators have noted that a threshold expressed as "more than 25%" can, in practice, allow ownership to be fragmented among multiple holders so that no single individual crosses the line. This means the threshold should be understood as a trigger for identification, not as a guarantee that every meaningful owner will be captured. It is also why control-based tests generally sit alongside the ownership threshold: under the FinCEN CDD rule, the separate control prong still applies even where no individual meets the ownership threshold, so an entity's beneficial owners may need to be identified on control grounds regardless of equity percentages.

Because the precise value and its expression vary by instrument and jurisdiction, practitioners should be careful not to assume a single universal rule. Whether the standard is "25% or more" or "more than 25%," and how it interacts with indirect ownership, aggregation, and control criteria, can differ. Getting this wrong can leave gaps in an entity's ownership picture or, conversely, impose identification obligations that do not apply. Exact application should always be confirmed against the applicable regulation.

Who it's relevant to

Compliance officers at covered financial institutions

Under the FinCEN CDD rule, covered financial institutions must apply the 25 percent ownership threshold to identify beneficial owners of legal entity customers. Compliance teams use it to scope how far to unwind an entity's ownership structure and to determine when the ownership prong is or is not engaged, while remembering that the control prong applies separately.

Reporting companies and their advisers under the Corporate Transparency Act

Entities subject to the CTA's beneficial ownership reporting framework, and the legal and corporate service professionals who advise them, rely on the 25 percent ownership-interest threshold to determine who qualifies as a beneficial owner. Changes that affect who meets the threshold, such as a sale altering ownership interests, may trigger reporting obligations that these parties must monitor.

Financial crime analysts and investigators

Analysts examining ownership structures use the threshold as a starting point for identifying individuals behind legal entities, while staying alert to fragmentation of ownership among multiple holders that may keep any single owner below the line. The threshold guides where identification is required but does not, on its own, guarantee that all significant owners are captured.

Legal and risk professionals working across jurisdictions

Because the exact value, its expression as "25% or more" versus "more than 25%," and its interaction with indirect ownership, aggregation, and control tests differ by instrument and jurisdiction, cross-border practitioners must confirm how the threshold applies under each applicable regime rather than assuming a single global standard.

Inside 25% Ownership Threshold

Beneficial Ownership Trigger

The 25% threshold is commonly used as an indicative benchmark for identifying a beneficial owner of a legal entity, typically expressed as a natural person who owns or controls, directly or indirectly, more than 25% of the shares or voting rights. It functions as a starting point for identification rather than a definitive test of control.

Direct and Indirect Ownership

The threshold applies to ownership held directly by an individual as well as ownership held indirectly through intermediate entities or chains of ownership. Calculating indirect holdings generally requires tracing ownership up through corporate layers to identify the natural persons behind them.

Ownership Versus Control

The 25% figure addresses the ownership limb of beneficial ownership, but control may also be exercised through other means, such as voting arrangements, appointment rights, or other influence, which can establish beneficial ownership independently of the percentage held.

Source Instruments

The use of a percentage threshold of this kind appears in various regimes, including the EU AML framework and US FinCEN customer due diligence rules, though the precise wording, whether the test is 'more than' or 'at least,' and accompanying control tests differ by jurisdiction. Exact formulations should be confirmed against the applicable regulation.

Senior Managing Official Fallback

In many regimes, where no natural person can be identified through the ownership or control tests, obliged entities may be directed to treat a senior managing official as the beneficial owner as a fallback, rather than concluding that no beneficial owner exists.

Scope Boundaries

The threshold typically applies to legal entities such as corporations and similar bodies. Trusts, partnerships, and other legal arrangements are often subject to different or additional identification criteria, and lower thresholds may apply in higher-risk situations depending on the regime.

Common questions

Answers to the questions practitioners most commonly ask about 25% Ownership Threshold.

Does owning less than 25% of a company mean a person is not a beneficial owner?

No. The 25% figure is commonly used as an indicative threshold to identify beneficial owners through ownership, but it is not a safe harbour below which no one qualifies. In many jurisdictions, a person may still be a beneficial owner through control exercised by other means, such as voting rights, rights to appoint or remove management, contractual arrangements, or other forms of influence, regardless of the size of their shareholding. The ownership percentage is one test among several, and exact criteria should be confirmed against the applicable regulation.

Is the 25% threshold a single global rule that applies the same way everywhere?

No. While a 25% ownership indicator appears in the FATF Recommendations (which are standards rather than binding law) and has been adopted in various forms in regimes such as the EU AML framework and US FinCEN beneficial ownership rules, the precise wording, whether the figure is 'more than 25%' or '25% or more,' and how it interacts with control-based tests can differ by jurisdiction. Some regimes apply lower thresholds for higher-risk situations. The applicable figure and its exact application should always be verified against the relevant local instrument.

How should aggregated or indirect holdings be treated when applying the threshold?

Ownership can be held directly or indirectly through intermediate entities, and holdings by connected or acting-in-concert parties may need to be aggregated depending on the regime. Where ownership is layered through multiple entities, firms typically calculate the effective percentage held by an individual at the end of the chain. The specific rules on aggregation and how indirect ownership is calculated vary, so obliged entities should apply the methodology set out in their governing regulation and document their approach.

What should an obliged entity do if no individual meets the ownership threshold?

Where no natural person is identified through the ownership test, many regimes require firms to next consider whether any individual exercises control through other means, and, failing that, to identify the senior managing official(s) as beneficial owner(s) on a fallback basis. This tiered approach is common but its exact sequence and documentation requirements differ by jurisdiction. Firms should record the steps taken and the reason a senior managing official was identified in place of an ownership-based beneficial owner.

Can a firm lower the threshold it applies for higher-risk customers?

In many jurisdictions the threshold operates as a baseline, and a risk-based approach may support identifying beneficial owners at a lower ownership level for higher-risk relationships, sectors, or structures. Applying a lower internal trigger is a risk-mitigation measure to improve transparency; it does not by itself establish wrongdoing on the part of any identified individual. Firms should ensure any enhanced approach is consistent with, and not less stringent than, the minimum set by the applicable regulation.

How should firms handle discrepancies between registry data and their own verification of the threshold?

Where a firm's own customer due diligence identifies beneficial ownership information that differs from what is recorded in a public or central register, some regimes impose an obligation to report or flag the discrepancy, and firms should not simply rely on registry data as conclusive. Verification of who meets the ownership threshold typically requires corroborating information from reliable, independent sources. The existence and mechanics of any discrepancy-reporting duty vary by jurisdiction and should be confirmed against the applicable rules.

Common misconceptions

Anyone below 25% ownership is never a beneficial owner and can be disregarded.

The 25% figure is an indicative ownership benchmark, not an exhaustive test. A person holding less than the threshold may still be a beneficial owner if they exercise control through other means, and some jurisdictions apply lower thresholds in higher-risk scenarios.

The 25% threshold is a single, uniform global rule that applies identically everywhere.

While a threshold of this magnitude appears across several frameworks such as the EU AML regime and US FinCEN rules, the precise wording, calculation method, accompanying control tests, and entity scope diverge by jurisdiction. Exact values and formulations should be confirmed against the applicable regulation.

Meeting the ownership threshold alone fully identifies who controls or benefits from an entity.

The threshold addresses only the ownership limb. Control exercised through voting arrangements, appointment rights, or other influence must also be assessed, and where no qualifying person is found, a senior managing official may serve as a fallback under many regimes.

Best practices

Treat the 25% threshold as a starting benchmark for identifying beneficial owners rather than a conclusive test, and always assess control exercised through means other than ownership.

Trace both direct and indirect holdings through intermediate entities and ownership chains to identify the natural persons ultimately behind a legal entity.

Confirm the precise threshold wording, calculation method, and entity scope against the specific applicable regulation, as formulations differ across regimes such as the EU AML framework and US FinCEN rules.

Apply lower or enhanced thresholds where the applicable regime or a higher-risk situation calls for them, rather than relying on 25% uniformly.

Where no natural person can be identified through ownership or control tests, apply the jurisdiction's fallback approach, such as identifying a senior managing official, rather than recording no beneficial owner.

Assess trusts, partnerships, and other legal arrangements against their own criteria rather than mechanically applying the corporate ownership threshold.