The importance of ownership structure – Part 2

Director of Commercial Lending , First National Financial Corporation
  • Aug. 6, 2014

Darryl BellwoodAs a follow-up to my original article on understanding corporate structure, we expand on how complex the federal requirements can become.

In the previous article, different types of borrowers were reviewed: individual, trust arrangements and corporate holdings and how complicated each can get.  It is really the trust arrangements that can create further difficulties for a lender, which leads to the increased costs to finance.

When a property is held in trust by a company for a beneficial owner, legally the beneficial owner is the true owner of the property even though they are not the registered owner on title. 

It is very common for a beneficial owner(s) to use a “nominee” to hold registered title on their behalf. The federal government requires the lender to follow the federal government’s requirement under the Anti Money Laundering and Terrorist Financing Act, or as a lender refers to it, “AML.”

Under this act, the federal government defines an individual as one “who owns or controls directly or indirectly 25% or more of an entity.”  For the lender, it is ideal when a borrower submits a complete organizational chart outlining all ownership to the individual level during the application stage. 

Lender can understand the complexity

In this way, the lender can understand the complexity and start the review process as soon as possible. We review each level of the organization so that we can understand the full beneficial ownership. 

For example, consider the following organizational chart:

Darryls-chart

In this example, in order to determine an AML beneficial owner, each layer (both direct and indirect) is reviewed, with each layer of ownership equaling 100%. 

Here is where additional complications can result. The lender must determine the ultimate indirect or direct beneficial ownership. 

This is why it is imperative that all individual owners be disclosed so we can determine whether, through the various layers of ownership, any individual owns in aggregate directly or indirectly 25% or more ownership of the borrowing entity. 

For example, look at the ownership of “Owner Y” in the organizational chart. The ownership stake of XYZ Ltd. is only 20% of the property and falls below the 25% ownership threshold. 

However, since XYZ Ltd. is not an individual, the lender is required to further investigate to determine who the individual (s) are behind XYZ Ltd. The next level of ownership behind XYZ Ltd. is LMNOP Ltd., which also is only a 20% indirect owner of ABC Co., the nominee of the property. 

Since this level of ownership is not at the individual level, further investigation is required. The last layer of ownership of XYZ Ltd. discloses two owners: Shareholder X with 40% of LMNOP Ltd. and Owner Y with 60%. 

This would be a 12% indirect ownership interest in ABC Co. for Owner Y via LMNOP Ltd. and XYZ Ltd.  It appears that owner Y falls below 25%. However, if we look closer, Owner Y also holds a 17.5% indirect ownership interest in ABC Co. via 789 Inc. and 123 Inc. 

Therefore, the aggregate indirect ownership of ABC Co. totals 29.5%, which is above the 25% threshold and therefore the lender requires information on Owner Y in order to comply with the AML requirements. The remainder of the owners and shareholders fall below the 25% threshold and can remain anonymous. 

Hesitant to provide information

Often borrowers are hesitant to provide any information on individual owners as they do not feel it provides any benefit to the application.  It is worthwhile to note that an individual owner’s specific information that is below 25% does not need to be provided, but for individuals that are over 25%, this information is required. 

The above example is fairly common, which can pose difficulties during the funding process. Additional complications can result when family trusts are added to the structure.  It is always best to let us know what the structure is during the application stage so that determinations can be made upfront prior to the legal stage.

Since many transactions with a lender are based on strong relationships, it is best that both the borrower and the lender communicate well in advance of the transaction closing. When the borrower is buying a new property, both the lender and borrower should understand this relationship well in advance.

This will avoid the costly delays and changes in paperwork  required to ensure the lender’s compliance with the Federal AML Act.

Darryl Bellwood is a Director of Commercial Lending with First National Financial, Canada’s largest non-bank lender. He is active in most markets in the country with a focus on investment real estate. All feedback is welcome and he can be reached at darryl.bellwood@firstnational.ca.


Darryl Bellwood is the Assistant Vice President, Commercial Financing with First National Financial, Canada’s largest non-bank lender. Darryl provides commercial mortgage financing solutions for all types of commercial real estate…

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Darryl Bellwood is the Assistant Vice President, Commercial Financing with First National Financial, Canada’s largest non-bank lender. Darryl provides commercial mortgage financing solutions for all types of commercial real estate…

Read more





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