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Ownership and Control in Foreign Direct Investments: Capitalism vs. Dictatorship in Limited Partnerships

Ownership and Control in Foreign Direct Investments: Capitalism vs. Dictatorship in Limited Partnerships

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OWNERSHIP AND CONTROL In Foreign Direct Investments Capitalism vs. Dictatorship in Limited Partnerships George M. Bogachevsky, UBO Summary Ambiguity in definitions related to Foreign Direct Investments (FDI), when Limited Partnerships (LP) are involved, leads to confusion of different roles of voting control in public corporations and voting control in LP, different roles of legal titles to equity and equity titles, and consequently resulting in confusion of what constitutes FDI, what constitutes a U.S. affiliate (investment target enterprise), a Foreign Parent (FP), and an Ultimate Beneficial Owner (UBO), and, therefore which companies have to file Foreign Direct Investment reports and what subsidiaries ought to be consolidated in those reports. That leads to errors in identifying FDI, FP, and consequently UBO in LP. Common practice is to overestimate the role of voting and therefore the role of General Partners (GP) in LP and to assign a status of a UBO in LP to a GP, not to Limited Partners, and not to LP. Thus in many cases, where LP is involved, industry and country of FP and UBO are often misidentified. Such practice is wrong because essential in identifying UBO is ultimate control of investment (possession of equity title to investment as opposed to legal title) and not managerial voting control by GP of daily activities of an LP; UBO status requires not only “control” alone, but both “control and own-ership” together. GP hardly can be defined as a “parent” or an “owner”; Limited Partners and GP act in concert per Partnership agreement and therefore constitute (just like closely held corporation) an associated group, which can and should be legitimate UBO in a Limited Partnership.