Determining Beneficial Ownership Under the CTA – Calculating Ownership Percentages
A “Beneficial Owner” under the CTA is defined as an individual who, directly or indirectly, either (1) exercises substantial control over the Reporting Company, or (2) owns or controls 25% or more of the ownership interests of the Reporting Company. See our blog post titled “Digging Deeper Into the Meaning of ‘Beneficial Owner’ Under the CTA” for a more in depth discussion.
The following will dig deeper into how 25%+ owners should be determined.
For the purpose of determining an individual’s ownership interest in a Reporting Company, ownership as a percentage of the total outstanding ownership interests of the Reporting Company must be calculated. Ownership interests are calculated as of the present moment, and any options or similar interests of the applicable individual are treated as exercised.
Reporting Companies that issue capital or profits interests (including entities treated as partnerships for federal income tax purposes) are to calculate each individual’s ownership interest by determining each respective individual’s capital and profit interests in the Reporting Company, as a percentage of the total outstanding capital and profit interests in the Reporting Company.
For Reporting Companies that are corporations, entities treated as corporations for federal income tax purposes, and other Reporting Companies that issue shares of stock, the applicable percentage used to calculate ownership interests must be the greater of:
The total combined voting power of all classes of ownership interests of the individual as a percentage of total outstanding voting power of all classes of ownership interests entitled to vote, and
The total combined value of the ownership interests of the individual as a percentage of the total outstanding value of all classes of ownership interests.
FinCEN recognized that there may be instances where the facts and circumstances of any particular situation may not lead to a clear outcome under the ownership calculation rules described above. If such calculations cannot be performed with “reasonable certainty,” any individual who owns or controls 25 percent or more of any class or type of ownership interest of a Reporting Company (e.g. Class A preferred stock, Class B preferred stock, etc.) is deemed to own or control 25 percent or more of the ownership interests of the Reporting Company.