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Understanding Full, Legal, Economic, and Effective Ownership

Overview

ORCA can capture the distinctions between Full, Legal, Economic, and Effective Ownership

Full Ownership

Full ownership means having both legal and economic ownership of a property. The owner has complete control over the property, including the right to use it, earn income from it, and transfer it to others.

Legal Ownership

Legal ownership refers to the person or entity whose name is on the property's title. This owner has to perform legal actions such as selling, buying, or transferring the property, but they may not necessarily benefit financially from it.

Economic Ownership

Economic ownership pertains to the person or entity that enjoys the financial benefits of the property, such as income, profits, and appreciation in value. This owner may not have their name on the title but still receives the economic benefits.

Effective Ownership

When considering an owned Asset or Legal Entity, ORCA can calculate the Effective Ownership, which reflects the true level of control or influence a Person or Entity has over a company. This takes into account both their direct ownership stake and any indirect ownership through other Entities.

Use the toggle in the additional filters to reflect the Effective Ownership.

Click here to see the Effective Ownership example or Scroll below to see the the Effective Ownership Example

Ownership Example

Let’s use an example with properties named Sunny Villa and Azure Retreat:

  • Full Ownership: Daniel has full ownership of Sunny Villa, which is valued at $1,500,000. He is listed on the title and enjoys all the financial benefits from the property, such as a rental income.
 
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  • Legal and Economic Ownership: John is the legal owner of Azure Retreat which is valued at $1,500,000, meaning his name is on the title. However, he has leased the property to his friend, Mike, and Mike receives all the rental income This makes Mike the economic owner, as he enjoys the financial benefits of the property.
    • Since John is the legal owner of Azure Retreat, the value of the property is included in his net wealth. Therefore, John’s net worth is $1,500,000
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Effective Ownership Example

We are in the perspective of the Company called Timber CO

Currently in the Amount type of “Ownership Amount”

You will notice that the ownership percentage is:

  • Alex Miller = 10%
  • Julia Miller = 10%
  • Richard Miller = 40%
  • Sophie Miller = 40%

The question is, What is their Effective Ownership of Timber CO?

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Toggle Effective Ownership

Navigate to the bottom right of ORCA and click on the white circle and then click on “Amount Type” to switch to Effective Ownership

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  • Alex Miller = 10% —> 1.75%
  • Julia Miller = 10% —> 1.75%
  • Richard Miller = 40% —> 7%
  • Sophie Miller = 40% —> 7%

Notice the Effective Ownership of Timber CO

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Hover over the Ownership Pill to understand how the Effective Ownership was calculated

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How do we calculate ownership?

Management Accounting / Valuations

  • Only full and legal ownership positions are included in the Management Accounting formula.

Effective Ownership Computation

  • Only full ownership is considered in the effective ownership calculation.

Structure Pill Display

  • The Structure Pill Display is the White circle showing the ownership percentage
  • Any ownership type (Legal, Economic, Full) can be shown individually.
  • Legal and Economic ownership can be displayed together in the pill.
  • If full ownership exists, only full ownership is shown.
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