Control is an important topic in relation to Anti Money Laundering, and most AML legislation addresses the topic of control. The new EU AML package talk about “Beneficial owners of legal entities shall be the natural persons who:..control, directly or indirectly, the corporate or other legal entity, through ownership interest or via other means.”. The UK legislation on People of Significant Control talks about “An individual who has the right to exercise, or actually exercises, significant influence or control over the company”.
When someone controls over 50% of the votes in a company, they are said to be in control.
In certain situations, when someone owns significantly more than the other owners and there are many small shareholders, one should consider the largest owner as controlling even if they own less than 50%.
This is because it is highly unlikely that the largest owner will not win through in a vote. Assessing such situations is very challenging. Our intuition struggles to evaluate these scenarios effectively. T-ranks Voting Power assists with this. It expresses how likely it is, given that all votes are cast, and all votes are random, that a shareholder is decisive for the outcome of a vote. When someone has a Voting Power of 99.99, statistically, it is only in one out of every 10,000 random votes that his vote is not decisive for the outcome.
This article describes the term “De Facto Control”, situations where an owner can be considered to be in control with less than 50% of the votes.
The example below is an anonymized real-life example, with only the largest shareholders shown:
The voting power score, being close to 100%, indicates that Audrey Schiller is in control according to De Facto Control, even though his ownership is 49.41% – below 50%.
The subject company, the green box, “Bauch – Senger”, has 28 shareholders. The figure below shows all the owners:
If we look at all the possible ways these owners can vote, we see that Audrey Schiller will be able to change the outcome in 99.9999% of the voting combinations.
If all the shareholders vote, he just needs one of the smallest shareholders to form a majority. In fact, the only way the small shareholders can beat Audrey Schiller is if all the small shareholders vote together to beat him, which statistically only happens in one of 227 times.
If more than 1.19% of the total ownership does not vote, he will be in control by himself.
It is fair to say that Audrey Schiller is in control according to De Facto Control. It is extremely unlikely that he will not win through in a vote.
If you want to know more about Voting Power and De Facto control, please contact T-rank.
Arne Petter Omholt, apo (at) trank (dot) no, +47 928 45 233