When analyzing complex ownership structures, the analysts faces a
recurring problem. The ownership structures are
so complex that it can be difficult to find
the controlling shareholders or the beneficial owners.
T-Rank power index is a tool that enables the user
to understand who has the power when decisions are going to be
made in the company.
In this Ukrainian example
you would not find any beneficial owners or any
controlling shareholders using traditional methods.
The T-Rank power index reveals that the subject company marked
in red is actually controlled by the individual on the top.
T-Rank shareholder maps is used by banks, law firms,
government institutions and large corporations globally.
It is used as part of the compliance process
to investigate complex ownership structures.
Indirect ownership is about cash rights, or in other words
with direct or indirect owners are entitled to a share of the
values in the company.
Voting power is about
the ability to influence or push through a decition.
The T rank power index calculates the voting power
of every direct and indirect owner of a given company.
The voting power of a direct or indirect shareholder
in the company is not just a function of the number of
controlled shares, but it's also highly dependent
on the distribution of shares among the shareholders.
In this scenario shareholder B has 49 percent of
the voting rights, but his voting power is
in fact zero.
Shareholder C,
who owns 51 percent, can push through any decision.
This changes drastically if the distribution of shares changes.
With this distribution of shares B's voting power is now
very high. If any of the other shareholders fail to be
represented at the general assembly,
or if just one of the 17 other shareholders agrees with B on
the matter, B will win through. He could in fact be considered
to be in control of company A.
This means that the shareholder who at first glance appears to
have limited voting power, might in fact have a significant
impact in the company vote.
Let's examine this principle a bit further. The company Inc.
is owned by the companies ABC Holding Ink and CDE Holding Inc,
who own 49.95 percent each. In addition we have a person,
Mrs. Catherine, who owns 0.10.
percent of the company.
The owners Adam, Ben, David and Ernst
also own 49.50 percent of respectively ABC
and CDE Holding. Mrs. Catherine owns 0.10.
percent in both of the holding companies.
The black numbers inside the boxes indicate that Mr.
Adam, Mr. Ben and Mr. David and Mr. Ernst
each have 24.95 percent indirect ownership of the Company Inc.
As the red number indicate a voting power of 12.50
percent each.
Mrs. Catherine has a indirect
ownership of 0.20 percent and voting power of 87.50 percent.
We define voting power as the shareholders ability to
flip the decision in a vote. A shareholder with a voting
power of hundred percent can flip any decision he or she is
in control. Mrs. Cathrine is a a small owner. when you look at
indirect ownership but is by far the most dominant owner when you
look at her voting power. How can this be?
We have to take a step back and examine the different
possible voting constellations in the company Inc. When a
decision is going to be made in the company the individuals on
the top of the shareholder structure have the decisive
voting power. There are five shareholders and they can vote
in many different ways. Let's look at one of the voting
combinations: Ben and Catherine vote yes but the rest vote no.
Ben and Catherine have the majority in ABC and thus ABC
will vote yes. David and Ernst have the majority in CDE and
thus CDE vote no. Catherine with a 0.10
percent direct ownership in the company Inc.
together with ABC´s yes vote constitutes a majority and the
final decision is yes.
What happens if some of the shareholders change
their opinion? If some of the no votes change to yes the result
will of course still be yes. If Ben or Cathrine changes
their opinion the end result would change in the Company Inc.
As you can see Mrs. Cathrine has an inordinate
amount of power compared to the number of shares she owns.
She only needs one other shareholder to constitute
a majority to push through any decision.
If a group of shareholders want to achieve control without Mrs
Cathrine then all of Mr.Adam, Mr Ben, Mr. David and Mr.
Ernst must form a coalition.
With this in mind we can say that Miss Cathrine is in fact
the most dominant owner of the Company Inc.
Identifying who has the voting power in the company is
important in many situations. But up until now
this information has not been easily available.
T-Rank is in fact the only tool on the market that helps
to discover these hidden power structures.
A controlling consolation is when a group of shareholders
together is in control of a given company.
If two of the 32 percent owners on the top decide to vote
together they constitute a controlling constellation.
Probability of control is a term used to within
financial reporting, for example in IFRS10 and this
is relevant in situations with distributed ownership.
The power index can be used to reveal controlling
shareholders according to probability of control.
The fact that one can own less than 50 percent of a company
but still for all intents and purposes be in control
of said company is the fact that many find counter intuitive.
This example from Malaysia might clarify.
The target company, Global Corp,
has 19 different owners.
One owner has 48.70 percent ownership.
Another own 32.70 percent. The rest range from 5.50
and 0.30.
As we saw earlier the number of shares does not
necessarily reflect the voting power of an individual.
The shareholder KOH has an ownership of 48.70
percent but the voting power is in fact 99.84 percent.
That means that KOH might be considered to be in control
of Global Corp according to probability of control.
The second largest owner, LOW, on the other hand
has an ownership of 32.70 percent but the voting power of
just 0.16 percent. If you want to understand the true
shareholder structure of a company then you must know
both indirect ownership and the voting powers of the
individuals on top.
The task of revealing controlling owners has always
been important but the work has been complicated and time
consuming with the traditional control only addressing one
aspect of ownership power and not providing details
of voting power and indirect ownership.
Let's look at one of the possible applications
identifying beneficial owners of a company.
The definition of beneficial owners varies from country
to country according to EU legislation as a minimum.
If the shareholder owns at least 25 percent of the voting rights
in the company or controls another company that has at
least 25 percent of the voting rights in the company he must be
considered a beneficial owner. In this example 2
is the beneficial owner of 1 since he owns more than 25
percent of the voting rights. 5 indirectly owns 32.25 percent
of the company. In many legislations a person having
indirect ownership above 25 percent is considered a
beneficial owner. The most interesting owner in this
example however is 8.
He has an indirect ownership of only 5.2 percent but he has
voting power of 99.9985 percent in 3, which normally would be
considered more than enough for control. Since 3 owns more
than 25 percent of the voting rights in 1, 8 is the beneficial
owner of 1. T-Rank power index is the only tool on the market
that identifies all beneficial owners according
to these definitions. With T-Rank you have an easy to use
tool that gives you unprecedented insights with
the touch of a button providing the details of voting power
and indirect ownership in an easy to understand and
intuitive interface.
Do you need more information?
Read more at T-Rank.no
trank.no or reach out to us.
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