Shareholder A owns 40% of Corporation X's stock. Corporation X owns stock in Corporation Y. Is Shareholder A deemed to constructively own Corporation Y's stock?
Understand the Problem
The question is asking about constructive ownership rules in the context of corporate stock ownership. Specifically, it's asking whether a shareholder in one corporation (Corporation X) is deemed to constructively own stock in another corporation (Corporation Y) simply because Corporation X owns stock in Corporation Y. The question provides four possible answers from which you must select the most accurate one based on constructive ownership principles.
Answer
Yes, Shareholder A constructively owns a percentage of Corporation Y's stock based on their 40% ownership in Corporation X.
Yes, Shareholder A is deemed to constructively own a percentage of Corporation Y's stock, based on their ownership percentage in Corporation X. Since Shareholder A owns 40% of Corporation X, they are considered to constructively own 40% of Corporation X's ownership in Corporation Y.
Answer for screen readers
Yes, Shareholder A is deemed to constructively own a percentage of Corporation Y's stock, based on their ownership percentage in Corporation X. Since Shareholder A owns 40% of Corporation X, they are considered to constructively own 40% of Corporation X's ownership in Corporation Y.
More Information
Constructive ownership means that an individual or entity is treated as owning stock even if it is held indirectly, such as through another corporation.
Tips
The rules of constructive ownership can be complex and may vary depending on the specific context (e.g., different sections of the tax code).
Sources
- Sec. 53.4943-8 Business holdings; constructive ownership. - taxnotes.com
- [PDF] Internal Revenue Service, Treasury § 53.4943–8 - GovInfo - govinfo.gov
- 26 CFR § 53.4943-8 - Business holdings; constructive ownership. - law.cornell.edu
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