Persons deemed holders: Overview, definition, and example
What are persons deemed holders?
Persons deemed holders refers to individuals or entities that, although they may not be the direct legal owners of certain assets or rights, are considered as holders for legal or operational purposes under specific circumstances. This can include scenarios where the legal title of an asset, such as stocks, bonds, or property, is held by an intermediary (like a trustee, custodian, or nominee), but the beneficial ownership or rights to the asset rest with another party.
In other cases, persons deemed holders may refer to individuals who are granted certain rights, such as voting rights or dividends, associated with assets, even though they are not the formal owners. This term is commonly used in securities law, property law, and financial contracts.
Why are persons deemed holders important?
The concept of persons deemed holders is important because it allows legal recognition of individuals or entities who are entitled to certain rights or benefits, even if they do not hold the legal title to the asset. This is particularly relevant in situations involving custodial arrangements, investment funds, or complex ownership structures.
For businesses, recognizing persons deemed holders ensures that transactions and decisions involving assets or securities are conducted fairly and in accordance with legal rights, even when the actual ownership is held indirectly. It also provides a framework for enforcing rights such as dividends or voting power, which may otherwise be difficult to assign in cases of intermediary ownership.
Understanding persons deemed holders through an example
Imagine a mutual fund where the fund manager holds the legal title to the shares of various stocks on behalf of the investors. Although the fund manager is the legal holder of the shares, the investors are the persons deemed holders because they are the beneficial owners of the shares and are entitled to the returns from the investment, such as dividends or capital gains.
In another example, a property is held in trust by a trustee on behalf of the beneficiaries. The trustee is the legal holder of the property, but the beneficiaries are considered persons deemed holders because they have the right to benefit from the property according to the terms of the trust, such as receiving rental income or proceeds from the sale of the property.
An example of a "persons deemed holders" clause
Here’s how a "persons deemed holders" clause might appear in a legal document or agreement:
“For the purposes of this Agreement, the term 'holder' shall include any person deemed to be a holder of the securities, whether directly or indirectly, through an intermediary, such as a custodian, trustee, or nominee. Such persons shall be entitled to exercise all rights associated with the securities, including but not limited to voting rights and receipt of dividends, in accordance with the terms of the securities.”
Conclusion
Persons deemed holders are individuals or entities who are recognized as having certain rights or interests in assets or securities, even if they do not hold the legal title. This concept is particularly important in financial and legal arrangements involving intermediaries, such as custodians or trustees, and allows for the appropriate allocation of rights like dividends or voting power. For businesses, understanding the role of persons deemed holders ensures proper management and protection of rights associated with assets or securities, even when the ownership structure is indirect.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.