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19 May 2017

Exploring integrated ownership: direct, indirect and multiple-path

Alistair King

What is integrated ownership and why is it becoming an important consideration in third-party compliance and due diligence?

Integrated ownership is a catch-all term used to describe the summed percentage ownership by an individual or entity of another entity.

To figure this out means looking at all the intricate paths through to that individual or entity, multiplying percentages between each level, and adding up the resulting figures for each path. (These calculations are done automatically within Orbis, our database of around 220 million companies across all countries worldwide.)
These totals are useful in some areas of compliance, as well as elsewhere in business, such as company valuation. And the term has applications in all the types of ownership structure that follow. In some strictly regulated areas of compliance integrated ownership is only partially relevant, as total ownership at particular levels in corporate structures can be more important. But regulations vary from one jurisdiction to the next, rules change, and a big part of compliance is mitigating against reputational risk. In this blog post we've grouped together three relatively simple types of integrated ownership in increasing order of complexity. We also consider the implications for ownership percentages at each level. In a future blog post we'll look at the more complicated areas of circular and aggregate ownership.

Direct ownership

An entity is directly owned or part-owned by an individual or entity if the ownership link is direct and passes through no other individuals or entities.

Except in the case of circular ownership (which we'll cover in a future blog post), the percentage share quoted can be taken at face-value in percentage threshold considerations.

Sample workings (see diagram)
Company A directly owns 60% of Company B. If Company A is sanctioned, Company B is "sanctioned by extension" (or "by association"), the lower limit being 50%.

Simple, single-path indirect ownership

In this type of structure, a simple chain of two or more ownership links exists between an owned or part-owned entity, and an owning or part-owning individual or entity, via one or more intermediate entities.

To calculate the ownership percentage of the lowest entity by the highest individual or entity, simply multiply the chain of percentages together. (Orbis ownership explorer, our dynamic visualisation tool, calculates this for you.)

Relevant percentage thresholds at various levels in the structure vary depending on your specific compliance consideration, jurisdiction, the riskiness of the focus entity and your own company's risk appetite.

Sample workings (see diagram)
Company A indirectly owns 45% of Company C (75% of 60%). If Company A is sanctioned, Companies B and C are "sanctioned by extension", because at every level, ownership is greater than 50%. This is known as the "cascade down effect". (On Orbis this integrated ownership percentage value is also shown in these diagrams; we've omitted it here for simplicity.)

Multiple-path, indirect ownership

This type of structure is an extension of the above. The difference is that there's more than one Bureau van Dijk ownership path from owning or part-owning individuals or entities at the top of the chain through to the focus entity at the bottom of the chain.

To calculate ownership percentages, consider each chain in turn as per the rule above and add them together. (Again, Orbis ownership explorer calculates this for you.)

See the note above about percentage thresholds. Considerations can be complicated by entities effectively existing at more than one level in an ownership structure if, for example, an entity directly part-owns another entity but also part-owns it indirectly through a third entity.

Sample workings (see diagram)
Company A indirectly owns 45% of Company D (60% of 15% + 55% of 20% + 25%). If Company A is sanctioned, Companies B and C are directly "sanctioned by extension", and Company D is indirectly sanctioned by extension. While 25, 15 and 20% are each below the 50% threshold, they exceed it in combination, and can be treated as at the same level.

But what does this all mean? What do the percentage thresholds relate to? And what are the implications for areas such as beneficial ownership and sanctions compliance?

We set this all in context in a twinset of free corporate ownership resources, available digitally and in hard copy: our A-Z guide of corporate ownership and compliance terms, which includes definitions like those above; and our Integrated corporate ownership and related risk poster, from which the accompanying images and workings are excerpts. The poster also highlights the relevant ownership percentage thresholds for different compliance concerns.

Order your free corporate ownership resources

A-Z guide of corporate ownership and compliance terms

The pocket-sized booklet covers themes such as third parties, AML4 and sanctions. It defines and discusses types of corporate ownership, outlines associated considerations, and includes related terms in the complex world of risk and compliance.

Poster explaining integrated corporate ownership and related risk

Our Integrated corporate ownership and related risk poster helps you understand complex corporate ownership structures within the context of different fields of compliance. The poster, which is A2 in size (42.0 x 59.4cm), sticks to any flat surface using static electricity, so it doesn’t need pins or Blu-Tack, and can be easily moved.

Download or order your free resources.

Alistair King

Alistair King, Content Manager

A member of the global marketing division, Alistair commissions, edits and writes stories and white papers on a wide range of topics.

A member of the global marketing division, Alistair commissions, edits and writes stories and white papers on a wide range of topics.

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