Legal Entity Ownership Program (LEOP) – Definition of Change in Control
Change in Control
A person or entity has control of an entity if they own more than 50 percent of the ownership interest (e.g., voting stock for corporations, capital and profits for partnerships and limited liability companies) in an entity. A change in control occurs when a person or entity obtains more than 50 percent of the ownership interest in the entity. A transfer of ownership interest in a legal entity that results in a change in control of that entity is a change in ownership of the California real property owned or held under lease (under certain circumstances) by the entity as of the date of the change in control. (See Revenue and Taxation Code section 64(c).) Control may be obtained directly or indirectly.
Direct Control: A person or entity obtains direct control of an entity when the person or entity either (1) acquires more than 50 percent of the voting stock of a corporation; or (2) acquires a majority (more than 50%) ownership interest in any partnership or LLC capital and profits; or (3) acquires more than 50 percent of the total ownership interest in any other entity.
Corporation Example – Direct Control: A owns 55 percent of the voting stock of Corporation B. C acquires A's 55 percent interest in B. Result: C obtained direct control of Corporation B.
Partnership Example – Direct Control: Two brothers, M and B, created a partnership. B owns 51 percent and M owns 49 percent of the partnership. The partnership had a continuation clause so that the partnership would not terminate if either B or M died. Upon B's death, his will gave a 2 percent interest to M and a 49 percent interest to his son D. Result: M obtained control of the partnership on the date of B's death.
Indirect Control: A person or entity may obtain indirect control of an entity by acquiring direct control of another entity that, in turn, directly or indirectly controls another entity.
Corporation Example – Indirect Control: A owns 55% of the voting stock of Corporation B. Corporation B, in turn, owns 100% of the voting stock of Corporation Z. C acquires A's 55% interest in Corporation B. Result: C obtained direct control of B and indirect control of Z.
Merger of Legal Entities
The merging of two corporations or other entities results in a change in control. Thus, the real property owned by the merged out (disappearing) corporation is subject to reassessment unless an exclusion applies. (See Exclusions from Reassessment section for explanation.)
Merger Example – Corporation A, which owns real property, merges with Corporation B. As a result of the merger, Corporation A no longer exists (i.e., it is the disappearing legal entity). The merger results in a change in ownership of the real property owned by Corporation A as of the date of the merger.
Acquisition by Majority Partner
If an owner of a majority interest (meaning more than 50%) in a partnership acquires all of the remaining partnership ownership interests or otherwise becomes the sole partner (for example, upon the withdrawal of all the other partners from the partnership), the transfer of the minority interests to the majority partner is not a change in ownership of the partnership's real property. (See Revenue and Taxation Code section 64(c)(2).)