The 25% Rule in UBO Identification: Ownership and Control

A person can qualify as a UBO through direct or indirect ownership, or through control, even with less than 25% of the shares. Compliance teams should trace ownership layers, calculate indirect interests and review voting, appointment and contractual rights. These factors help determine whether someone meets the applicable beneficial ownership threshold or qualifies through another route.

The 25% threshold is widely used, but its application varies. FATF treats it as one measure of controlling ownership, while UK rules generally require more than 25%. Current EU rules use 25% plus one share or more than 25%, and the EU AML Regulation will use 25% or more from 10 July 2027.

In this guide, learn how the ubo 25 percent rule works, how to calculate direct and indirect ownership, when control can make someone a UBO, how the ubo control threshold may apply, and how requirements vary by jurisdiction.

What Is an Ultimate Beneficial Owner?

An Ultimate Beneficial Owner (UBO) is the natural person who ultimately owns, controls or benefits from a business, directly or through companies, trusts or nominees. UBO identification looks beyond registered shareholders to assess the individual’s ownership, control, identity and risk. This assessment may involve applying the beneficial ownership threshold, tracing indirect interests and reviewing whether a person meets the relevant ubo control threshold.

What Is the 25% Rule in UBO Identification?

The ubo 25 percent rule helps identify individuals who significantly own a company directly or indirectly. Thresholds vary by jurisdiction, and people with less than 25% may still qualify as UBOs if they exercise significant control or influence. For this reason, the 25% test should be treated as one part of a broader beneficial ownership assessment rather than as a complete definition of UBO status.

Why Is 25% Commonly Used as a Beneficial Ownership Threshold?

The 25% beneficial ownership threshold provides a practical starting point for identifying individuals with a significant ownership interest in a company.

However, UBO identification also requires reviewing indirect ownership, voting rights, and control through other means. The applicable ubo control threshold may therefore involve more than a person's percentage of shares.

• It identifies individuals with a substantial ownership interest - The 25% threshold helps compliance teams identify natural persons who may hold a significant beneficial ownership interest in a company, either directly or through an indirect ownership structure.
• It provides a practical starting point for UBO analysis - Reviewing who owns around 25% or more of the shares, voting rights or other ownership interests gives KYB and AML teams an initial basis for tracing the ultimate beneficial owner and applying the relevant beneficial ownership threshold.
• It helps distinguish significant owners from minor shareholders - A defined ownership threshold allows compliance teams to focus on individuals with a meaningful economic stake while avoiding unnecessary investigation of every small shareholder.
• It creates a consistent benchmark across many compliance frameworks - The 25% beneficial ownership threshold is widely used in UBO identification, although the exact wording differs between jurisdictions, with some rules applying to 25% or more and others requiring more than 25%.
• It must still be combined with control and influence tests - A person may qualify as a UBO through voting rights, board appointment powers, contractual rights or significant influence even when they own less than 25% of the company. These factors may be relevant when determining whether the person meets the applicable ubo control threshold.

Direct Ownership and the 25% Rule

Direct beneficial ownership means a person personally holds shares, voting rights or another qualifying interest in a company. 

For example, in a company owned by Sarah (40%), James (30%), Priya (20%) and David (10%), Sarah and James would generally meet a 25% ownership threshold under a framework applying the ubo 25 percent rule. Priya and David would not qualify through ownership alone but could still be UBOs if they exercise significant control or influence, including control that satisfies the applicable ubo control threshold.

Indirect Ownership and UBO Identification

Indirect ownership can make KYB and UBO identification difficult because the ultimate owner may not appear on the customer company's shareholder register. Instead, ownership may pass through several companies. 

For example, if Person A owns 60% of a holding company that owns 50% of the target, their indirect interest is 60% × 50% = 30%. This may qualify them as a UBO under the applicable beneficial ownership threshold and the relevant ubo 25 percent rule. Even where the calculated interest falls below the threshold, compliance teams should still assess whether Person A exercises control under the applicable ubo control threshold.

How to Identify a UBO Step by Step

Identifying an Ultimate Beneficial Owner (UBO) requires tracing direct and indirect ownership, reviewing control rights, and verifying the natural persons behind a business.

The following steps help compliance teams complete accurate UBO identification as part of KYB, AML, and customer due diligence while applying the relevant beneficial ownership threshold and ubo control threshold.

Step 1: Verify the Business

Begin the UBO identification process by confirming the company's legal identity. Collect and verify its legal company name, registration number, legal form, incorporation jurisdiction, registered address and current company status. Review reliable corporate registry records and official business documents wherever possible.

Also confirm the company's directors and registered shareholders. Accurate KYB information provides the foundation for beneficial ownership analysis, ownership mapping, AML screening and risk assessment. It also helps teams determine which ubo 25 percent rule or jurisdiction-specific threshold may apply.

Step 2: Identify Direct Shareholders

Determine which natural persons or legal entities directly own shares in the company. Record each shareholder's percentage of shares, share class, voting rights and any other ownership interests that may affect beneficial ownership.

Compare each direct holding with the applicable UBO ownership threshold, such as 25% or more or more than 25%, depending on the jurisdiction. Remember that ownership percentage and control are separate tests, so minority shareholders may still require further review under the relevant ubo control threshold.

Step 3: Identify Corporate Shareholders

If a direct shareholder is another company, holding company, partnership or legal entity, continue tracing the ownership structure. Collect the entity's registration details, shareholders, ownership percentages and voting rights to understand who ultimately owns or controls it.

Do not treat an intermediate corporation as the final UBO. A complete KYB and UBO assessment must look through each corporate layer until the relevant natural persons are identified or the applicable control and fallback tests are reached. This prevents teams from applying the beneficial ownership threshold only to the immediate shareholder.

Step 4: Trace Ownership to Natural Persons

Follow every relevant direct and indirect ownership path through the corporate structure until you reach the ultimate natural persons. Calculate indirect ownership by multiplying the percentages held at each level and assess whether interests from multiple ownership chains must be combined.

Then review voting rights, board appointment powers, shareholder agreements, veto rights and other forms of control. The final UBO analysis should identify the individuals who ultimately own or control the business, not merely the companies listed on its shareholder register. This analysis should consider both the ubo 25 percent rule and the applicable ubo control threshold.

Step 5: Calculate Indirect Ownership

Multiply ownership percentages along each ownership chain to calculate indirect beneficial ownership. For example, if an individual owns 60% of a holding company that owns 50% of the target company, the individual's indirect ownership is 30%.

Where the same individual holds interests through multiple routes, determine whether those interests must be aggregated under the relevant beneficial ownership rules. Record each calculation clearly as part of the UBO identification process and explain how the result compares with the applicable beneficial ownership threshold.

Step 6: Assess Control

Ownership percentage is only one part of UBO identification. Review voting rights, board appointment or removal rights, shareholder agreements, veto powers, contractual control, significant influence and other decision-making rights.

A person may qualify as a UBO even with less than 25% ownership if they can direct important company decisions. Assess both economic ownership and practical control when completing KYB and CDD checks. Where the ownership test does not identify a person, these factors may determine whether someone meets the ubo control threshold.

Step 7: Verify the UBO's Identity

Once the ultimate beneficial owner has been identified, verify their identity using reliable and independent sources. The information collected should match the applicable jurisdiction's KYC and AML requirements.

Verification may include the individual's name, date of birth, nationality, residential address and government-issued identity documents. Keep records of the checks completed and resolve any discrepancies before approving the business relationship. The verification record should also show why the individual was identified under the ubo 25 percent rule, the beneficial ownership threshold or the relevant control test.

Step 8: Conduct AML Screening and Record the Assessment

Depending on the applicable CDD framework and risk profile, screen the UBO and other relevant individuals against sanctions lists, PEP databases, watchlists and adverse media sources. Apply enhanced due diligence where ownership complexity, jurisdiction or other risk factors require deeper investigation.

Maintain evidence of identified shareholders, ownership percentages, indirect ownership calculations, UBOs, control relationships, documents reviewed and verification performed. Record the rationale for the final conclusion so the UBO assessment can be reviewed and updated when ownership or control changes. The assessment should clearly distinguish between ownership identified through the ubo 25 percent rule, the applicable beneficial ownership threshold and control identified through the ubo control threshold.

How to Calculate Indirect Beneficial Ownership

Indirect beneficial ownership occurs when an individual's interest passes through one or more corporate entities before reaching the target company. To calculate it, multiply the ownership percentages at each level, then add qualifying interests held through separate routes. The EU's forthcoming AML Regulation expressly provides for this approach.

This calculation is central to applying the ubo 25 percent rule because a person may not appear as a direct shareholder while still exceeding the relevant beneficial ownership threshold through one or more corporate layers. It is also important to distinguish economic ownership from the ubo control threshold, since control may arise through voting rights or other arrangements even where the calculated percentage is below the applicable threshold.

Formula

Indirect ownership = Ownership at Level 1 × Ownership at Level 2 × Ownership at Level 3...

For multiple ownership routes:

Total beneficial ownership = Chain A + Chain B + Chain C

For example, owning 60% of a holding company that owns 50% of the target business creates a 30% indirect interest. Direct and indirect interests may also need to be combined, depending on the applicable jurisdiction and its beneficial ownership threshold.

Example 1: One Ownership Chain

Emma owns 80% of Company B, which owns 40% of Company A.

80% × 40% = 32%

Emma therefore has a 32% indirect interest in Company A, which may meet the applicable UBO threshold under the ubo 25 percent rule. Compliance teams should still confirm whether the relevant jurisdiction uses 25% or more, more than 25%, or another beneficial ownership threshold.

Example 2: Multiple Ownership Chains

Daniel owns 50% of Holding Company A, which owns 30% of Target Ltd, and 40% of Holding Company B, which owns 40% of Target Ltd.

• Route A: 50% × 30% = 15%
• Route B: 40% × 40% = 16%

Total indirect interest:

15% + 16% = 31%

Where aggregation is required, both routes should be considered when assessing Daniel as a potential UBO. This is particularly important where the combined interest exceeds the applicable beneficial ownership threshold, even though neither individual ownership route does so independently.

Example 3: Three-Layer Structure

Person A owns 70% of Company X, which owns 60% of Company Y, which owns 70% of Company Z.

70% × 60% × 70% = 29.4%

Person A therefore has a 29.4% indirect interest in Company Z, despite not appearing as a direct shareholder. This may satisfy the ubo 25 percent rule in a jurisdiction using a 25% or more test. However, the assessment should also consider whether Person A has control through other means under the applicable ubo control threshold.

Direct and Indirect Holdings May Need to Be Combined

A UBO assessment should combine direct and indirect ownership where required. For example, Maria owns 15% of Target Ltd directly and 50% of Holding Ltd, which owns 30% of Target Ltd. Her indirect interest is 15% (50% × 30%), giving her a combined interest of 30%. This may exceed the relevant beneficial ownership threshold, but compliance teams should also review voting rights, control arrangements and local rules.

Combining interests is an important part of applying the ubo 25 percent rule because a person's total ownership may be spread across direct holdings and several corporate ownership chains. Even where the combined percentage does not meet the applicable beneficial ownership threshold, Maria could still require further review if she exercises significant influence or satisfies the relevant ubo control threshold.

Ownership Percentage vs Voting Rights

Shareholding and voting power are not always equal, so UBO identification must assess both economic ownership and actual control. A share class may carry multiple votes per share, no voting rights, veto powers, director appointment rights or preferential economic benefits.

For example, Person A may own 40% economically but hold only 10% of voting rights, while Persons B and C each own 20% but control 35% of the vote. This means a person with less than 25% ownership may still qualify as a UBO through voting control or significant influence under the applicable ubo control threshold.

Effective KYB and beneficial ownership verification therefore require more than a basic shareholder percentage: compliance teams should review share classes, voting agreements, board rights, veto powers, indirect ownership and control relationships to identify the natural persons who ultimately own or control the business. The ubo 25 percent rule can provide a useful starting point, but it should not replace a complete assessment of the beneficial ownership threshold and the relevant ubo control threshold.

Ownership Through Holding Companies and Layered Structures

Businesses may use parent companies, subsidiaries, holding companies, partnerships, trusts, foundations, nominee arrangements and investment vehicles to organise ownership or separate operations. These structures are not inherently suspicious, but each additional layer can make UBO identification more complex.

Compliance teams should trace ownership through every entity, review shareholding and voting rights, calculate indirect ownership, and identify the natural persons who ultimately own or control the customer company. A corporate ownership tree can help: Natural Person → Holding Company A → Holding Company B → Customer Company, with percentages recorded at each level.

This process helps determine whether an individual meets the ubo 25 percent rule through indirect ownership, satisfies the applicable beneficial ownership threshold through combined interests, or qualifies under the ubo control threshold because of voting rights or other control arrangements.

Nominee Shareholders and Beneficial Ownership

A nominee shareholder is the person or entity listed as the legal owner of shares, while another individual, the ultimate beneficial owner (UBO), may receive the benefits or exercise control. During KYB, KYC and AML checks, teams should distinguish legal ownership from beneficial ownership by reviewing relevant agreements and corporate documents. Nominee arrangements are not automatically suspicious or unlawful, but they can obscure ownership and make UBO identification essential.

Where a nominee holds shares on behalf of another person, compliance teams should assess whether the underlying individual meets the ubo 25 percent rule, exceeds the applicable beneficial ownership threshold through direct or indirect interests, or exercises control under the relevant ubo control threshold.

Joint Ownership and Acting Together

Joint ownership and coordinated control can affect UBO identification when individuals share ownership, benefits or decision-making power. Review shareholder agreements, voting arrangements, joint ventures, coordinated board appointments and relevant contractual rights.

However, do not automatically combine unrelated minority holdings just because they collectively exceed 25%. Aggregation depends on the jurisdiction, legal structure and evidence that the individuals are acting together. The ubo 25 percent rule should therefore be applied alongside the relevant control tests and evidence of coordinated action.

The 25% Rule Across Major Regulatory Frameworks

The 25% UBO threshold is widely used, but its exact meaning varies across regulatory frameworks and jurisdictions. Understanding these differences helps compliance teams apply the beneficial ownership threshold and control tests accurately.

The sections below compare how FATF, the EU, the UK and the US approach beneficial ownership thresholds, indirect ownership and control, including the ubo control threshold where applicable.

FATF

The Financial Action Task Force (FATF) focuses on identifying the natural persons who ultimately own or control a legal entity, not simply its corporate shareholder or nominee. Its standards recognise percentage thresholds, with 25% commonly used as a benchmark for the ubo 25 percent rule.

However, FATF does not impose one universal 25% rule or beneficial ownership threshold; each jurisdiction sets its own requirements. If ownership does not identify an individual, teams must assess other forms of control, including voting rights, board appointment powers, contractual authority and significant influence. These additional factors may determine whether an individual meets the applicable ubo control threshold.

European Union

Under the current EU Anti-Money Laundering Directive, direct beneficial ownership is generally indicated by owning 25% plus one share or more than 25%. Businesses must also trace indirect ownership through corporate layers to identify the ultimate natural persons. Since EU Member States may apply lower thresholds, organisations should always check the rules in the relevant country before applying the beneficial ownership threshold.

From 10 July 2027

Regulation (EU) 2024/1624 will introduce a harmonised beneficial ownership definition based on holding 25% or more of a company's shares, voting rights or other ownership interests. It also clarifies how to calculate indirect ownership through corporate chains and separate ownership routes. The framework will generally apply from 10 July 2027 and will provide a more specific basis for applying the ubo 25 percent rule across the EU.

United Kingdom

Under the UK's People with Significant Control (PSC) regime, an individual may need to be identified if they hold more than 25% of a company's shares or voting rights, can appoint or remove a majority of the board, or exercise significant influence or control. Certain trusts or firms may also trigger reporting obligations.

Exactly 25% is not the same as “more than 25%” under the UK PSC test. However, other factors, such as voting arrangements, board appointment rights or significant influence, may still make someone a registrable person with significant control. These factors should be assessed separately from the numerical beneficial ownership threshold and may satisfy the relevant ubo control threshold.

United States

Under FinCEN's Customer Due Diligence (CDD) Rule, covered financial institutions generally identify individuals who directly or indirectly own 25% or more of a legal entity's equity interests. This ownership prong is separate from the control prong, which identifies an individual responsible for controlling, managing or directing the entity.

These requirements show that ownership and control are distinct concepts. The ubo 25 percent rule addresses an ownership test, while the ubo control threshold addresses the separate question of who has practical authority over the entity. This discussion focuses on the CDD Rule, not separate Corporate Transparency Act reporting requirements.

Why the 25% Rule Alone Can Miss the Real UBO

The 25% beneficial ownership threshold is a useful starting point for UBO identification, but it may not reveal every individual who ultimately owns or controls a business.

Complex ownership structures, indirect shareholding, voting rights and significant influence can all obscure the real Ultimate Beneficial Owner. Applying the ubo 25 percent rule without reviewing these factors may result in an incomplete beneficial ownership assessment.

Ownership fragmentation - An individual may spread beneficial ownership across several companies or holding vehicles so that no single direct shareholding crosses the applicable UBO threshold. A complete UBO assessment should connect these interests, determine whether they must be aggregated, and trace each ownership route to the ultimate natural person.

Multiple ownership chains - A person may hold interests through multiple ownership chains, none exceeding 25% individually. Combined, they may still represent significant beneficial ownership. Compliance teams should map each layer, calculate indirect interests and apply local aggregation rules when assessing the beneficial ownership threshold.

Control without large ownership - Ownership percentage does not always reflect control. Someone with only 10% of shares may still appoint directors, exercise veto rights or influence decisions through a shareholder agreement. These rights can make them relevant to UBO identification even when their ownership is below the threshold and may bring them within the applicable ubo control threshold.

Different share classes - Companies may issue ordinary, preferred, non-voting or multiple-vote shares, separating economic ownership from voting power. Someone with a modest financial interest may still hold disproportionate voting rights or decision-making authority. UBO analysis should therefore review share classes, voting rights and other ownership interests separately rather than relying only on the ubo 25 percent rule.

Nominee arrangements - A nominee shareholder may appear as the legal owner while holding shares for someone else. Compliance teams should review nominee agreements, trust declarations, voting instructions and related records to identify the person who ultimately benefits from or controls the interest.

Layered legal entities - Complex structures involving parent companies, subsidiaries, trusts or investment vehicles can make it difficult to identify the ultimate beneficial owner. KYB teams should trace each ownership layer, calculate indirect interests and continue until the relevant natural persons are identified or the applicable control and fallback tests are reached.

Common Mistakes to Avoid When Applying the 25% UBO Rule

Understanding the ubo 25 percent rule requires more than checking a shareholder’s ownership percentage. Common errors in beneficial ownership identification can lead to incomplete KYB, AML and CDD assessments and an inaccurate application of the beneficial ownership threshold.

The following mistakes can make it harder to identify the natural persons who ultimately own or control a business.

Assuming the threshold is identical everywhere

Better approach: Check the jurisdiction-specific definition. Some frameworks use 25% or more, while others require more than 25% or 25% plus one share. Confirm how local rules treat direct and indirect ownership, voting rights and control, and verify whether the applicable beneficial ownership threshold differs from the one used in another jurisdiction.

Ignoring voting rights

Better approach: Review ownership and control separately. Someone with less than 25% of the shares may still control the company through voting rights, veto powers, shareholder agreements or director appointment rights. The relevant ubo control threshold may therefore be met through control rather than ownership alone. UBO analysis should look beyond the shareholder register.

Stopping at an intermediate company

Better approach: Trace each direct and indirect ownership route through every legal entity until you identify the natural person who ultimately owns or controls the business. This helps ensure the ubo 25 percent rule is applied to the actual individual behind the corporate structure rather than to an intermediate company.

Treating exactly 25% the same in every country

Better approach: Check whether the local rule uses “25% or more,” “more than 25%,” or another threshold. Exactly 25% may qualify in one country but not another, so also assess voting rights, board appointment powers and significant influence. These factors may be relevant when applying both the beneficial ownership threshold and the ubo control threshold.

Relying only on self-declared ownership

Better approach: Corroborate customer declarations with reliable corporate records and supporting documentation. Compare them with company registries, shareholder registers, incorporation documents, ownership charts and other KYB evidence before confirming the UBO. This helps determine whether the declared ownership accurately reflects the ubo 25 percent rule and any applicable control tests.

Bottom Line

The UBO 25 percent rule is a useful starting point, but it is not a complete test. Thresholds vary by jurisdiction, and a person may qualify through direct or indirect ownership, voting rights, significant influence or other control.

Reliable UBO identification requires tracing ownership to the ultimate natural persons, calculating indirect interests, reviewing control rights and documenting the outcome. If no one meets the beneficial ownership threshold, assess other control mechanisms and applicable fallback requirements.

Combining accurate ownership data, local rules and risk-based KYB, AML and CDD helps organisations identify who ultimately owns or controls a business.

Binderr Services simplifies KYB, ownership mapping and UBO identification with streamlined compliance support.

FAQs - 25% Rule in UBO Identification