Based on the facts provided, Corp does control the acquired assets. If Person A and Person B control the trusts (i.e., the trusts are not their own UPEs), then Person A and Person B would each be an acquired person and a UPE of the acquired assets.
If the trusts have regularly prepared financials, they should be provided. If not, those of Corp should (and if helpful, can voluntarily) be provided.
Question
I am trying to determine the ultimate parent entity of an operating company that would be the acquired entity in a voting securities acquisition.
The chain of ownership/control is as follows:
- Acquired Entity Operating Company: the acquired entity holding the assets being acquired. Acquired Entity Operating Company is controlled by Holding Company through 54.2%ownership of the outstanding voting securities.
- No one entity owns more than 50% of the outstanding voting securities of Holding Company. However, Two Funds, (Fund 1 and Fund 2) combined have a majority share. Fund 1 owns 47% of the outstanding securities of Holding Company. Fund 2 owns 22% of the outstanding securities of Holding Company.
- Fund 1 and Fund 2 share common ownership. BOTH Fund 1 and Fund 2 are each controlled by Corp. Corp owns 100% of Fund 1 and Corp owns99.99% of Fund 2. If Fund 1 and Fund 2 are aggregated, they would have control of the Holding Company (69% ownership).
- For purposes of determining the UPE, we plan to aggregate the ownership of Fund 1 and Fund 2 based on our understanding that a person “holds” the voting securities either directly or through another entity it controls.
Could you please let us know if that analysis is correct? If not, then Holding Company would be the UPE because it would not be controlled by someone with 50% or more of the outstanding shares. Do you agree?
- Assuming the aggregation is correct, the ownership of Corp is as follows:
- Corp is owned by 3 trusts:
- Trust 1: controlled by natural person, Person A (33%);
- Trust 2: controlled by natural person, Person B (33%); and
- Trust 3: controlled by Person A and Person B, together (33%)
- Combining their ownerships of Corp, Person A and Person B would each own 50% of Corp and thus BOTH control Corp.
- Corp is owned by 3 trusts:
- In Sum, our analysis identifies that Person A and Person B both control Corp. Because Corp controls both Fund 1 and Fund 2 under common ownership, aggregating both Funds would result in control of Holding Company (69% ownership)
- Therefore, we believe that natural persons Person A and Person B would both be UPEs of Operating Company.
Please let us know if you agree with our analysis. Assuming it is correct, we would plan to make a separate Acquired Person filing for each natural person UPE pursuant to the guidance we have found.
Lastly, if the UPEs are indeed natural persons, we plan to submit “the most recent reports for the highest-level entity(ies) that controls the target under ‘UPE Structure.’” We are having difficulty determining whether that would be the three trusts (to the extent they have reports) or Corp, which is the highest-level entity with a controlling interest by itself.
Many thanks in advance for your assistance. Please let me know if any additional information would be helpful.