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Beneficial Ownership and Control of Interests Issues 1 (March 4, 2008)

handle is hein.nccusl/nccpub01074 and id is 1 raw text is: Memorandum TO: DRAFTING COMMITTEE ON RECORD OWNERS OF BUSINESSES ACT FROM: Harry J. Haynsworth, Chair DATE: March 4, 2008 RE: Overview of Issues Involved in Determining Beneficial Ownership and Control of Interests in Business Entities Collection and maintenance of accurate business entity beneficial ownership and control information is a key component of the anti-money laundering business entity proposals that have been made by FATF, the U.S. Senate Homeland Security Committee Permanent Subcommittee on Investigations, the Department of Justice and various units within the Treasury Department dealing with money laundering issues. The purpose of this memorandum is to provide a brief overview of the issues and problems that will arise if business entities are required to collect and maintain complete beneficial ownership information in addition to record owner information, which is and always has been the recordkeeping standard in U.S. business entity laws. Several samples of beneficial ownership statutes are attached as exhibits. All of them share certain common characteristics. First, all of them have as their objective determining who actually controls the entity. Second, they all contain an indirect as well as a direct ownership requirement. 1. Control Control is generally defined as having a specified percentage of voting power sufficient to elect or remove the managers of a business entity. The percentage figure used in current statutes varies considerably. European Union Directive 2005/60/EC (Exhibit 1) uses 25% as does the United Kingdom definition (Exhibit 2). The most recent Department of Justice proposal (Exhibit 3) specifies 15%. I have seen some control definitions relating to publicly-traded corporations that use a 10% figure (see Exhibit 4). The general statutory rule for election of directors in a corporation is a majority (50%+) of the shares entitled to vote for directors. The general statutory rule in U.S. uniform unincorporated entity statutes is unanimity (100%), but this percentage can be changed by agreement of the partners (partnership) or members (limited 2146509vl

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