Dennis Wisnosky



Discussion items 20150728 FIBO-BE FCT.docx

20150728 FIBO-BE FCT


Recent Changes­ see Slide 2 of today's deck.


Things which are specific to finance e.g. Investment Firm, are moved to FBC as being finance industry specific kinds of legal entity or functional entity.


Comments: Investment Firm is still a legal entity.   Actually Investment Firm would be defined by its function, but the form which it takes (and gets an LEI) may be one of a range of existing legal forms.  In talking this out with Wells attorneys, they are not aware of a legal form that is an investment firm formed in its own right (except perhaps for some specializations of trusts).  Would think of an investment firm as an investment company? FBC has Investment Company as an instance of Functional Business Entity (an entity defined according to its function, with a relationship to the kind of entity that can perform that function).


Functional Business Entity to be explained - Need examples.


Sole Proprietership is a kind of formal organization, differentiated form the Sole Proprietor, which is a relative thing ­ the role that a person plays who is the owner of the business which is a sole proprietership, an unincorporated business.


Is Sole Propetership a relative or independent thing? Wells actually allocate an on board for a Sole Proprietership as a business account, with its own enterprise customer number.  So Wells regard this as an independent entity with its own number etc.  This differs from how the law regards it, which is that the person and the business are one and the same both from a legal and from a tax perspective. From the perspective of banking functions these are regarded by the bank as an independent thing. Wells has 2.7 million accounts that are identified as Sole Propeterships.


Does anyone disagree with this? he proposal is to define Sole Proprietership as a kind of formal organization.  Organization: doesn't this have more than one member?  No, it uses has member only some Autonomous Entity (i.e. an allValuesFrom restriction).  A sole proprietership can have employee ­ it has a single owner but there may be one or more than one member.


JIRA Issues Status


BE­51 intended meaning of Natural Person the same as Legally Capable Person.  Merged the axioms for these. Will eventually get rid o NaturalPerson.


BE­50 rationalize names of sub properties ­ these needed to be better named.  Some relate to only ownership, some to ownership and control. 


BE­47 to be covered today ­ move investment firm to FBC.  EK: BE­47 InvestmentCompany has been part of FBC for some time. So there is a redundancy to deal with.  InvestmentCompany is a Functional Business Entity.  Examples as requested by Kristen above: specifically, why would this not be a legal Entity?  KH expectation was this would be lumped in with legal entiy as another kind of LE


EK: Distinction from the ouset in FIBO: the Legal Entity is the C Corporation or LLC or whatever it is.  The Investment Company is the manifestation of that as a functional entity ­ the same as for Bank.  For example we have Holding Company and the other is the National Bank ­ we have examples of Citi entity that perform these functions.  So we have a representation for Citibank as a legal entity and we have a functional entity which is "the bank per its function.  Then the C Corporation (independent) has a registration number in Delaware, whereas the Bank, as a bank, has membership of Fed and other features specific to its function.  The Bank is regulated as a bank whereas the legal entity is regulated by company law. All of the elements of the bank are features of kind of legal entity; however, from an ontological perspective there is a role (or function) that the bank plays.  So the C Corporation is the entity itself (independent thing); the entity as a bank (functional entity) has properties specific to its playing that function.  From a legal perspective it's the same thing, but from a modeling perspective these

are distinct, so that logically we can assign certain capabilities to the functional entity. This is a modeling artifact.  This allows us to infer information about the bank.  The underlying legal form is covered (in BE) and would have the BE. The LEI is allocated to an independent thing ­ even though the need for one arises from a relative thing which has the recognition of the entity as being eligible for one.  So it is the FMR LLC that has the LEI (in the example of Fidelity) whereas it then functions as a functional entity, which is an investment company.  Over time every (independent) entity will have an LEI.   Then the ownership and control hierarchies will be between the independent things, each with its LEI.


So if Entity X functions as an Investment Company. At some point a given entity might opt to change the functions performs ­ then the LE remains the same but the Functional Entity my change over time. So the use of these functional Entities also lets us manage changes over time for FEs hat are distinct from changes in the lifecycle of an independent LE.


BE­45 Associate Natural Person with LegallyCapablePerson - this can be closed, as the definition of what was meant by Natural Person in the model has changed its meaning from one thing to another.  This relates to the separate issue on Legally Capable Person.


Back to slides­ what to do about Legal Person.  MB has been unrelenting in holding out for having the concept of Legal Person in the model.  At a minimum he would want us to make the case for removing this before it is removed, since it was there for many years.  DN and MB have spent several sessions on this.  See straw man model in Slide 7.


Business Entity is synonymous with company ­ a thing which has commercial or non commercial intent and is regulated or administered by commercial law. So this definition embraces several features.  (Formed and/or administered by commercial law, and with the commercial and non commercial purposes).


Then there is Legal Entity. In this sense Legal Entity is as framed in ISO 17442 as a contractually capable entity that is not a human.  This is distinct form the legal usage of Legal entity which is synonymous with Legal Person.

As such this includes corporations partnerships, LLCs, government entities some trusts.  MB notes this has to date always been all trusts ­ since this is anything that can be given an LEI and can enter into contracts. 


David says there may be some edge cases where this doesn't apply.  LegalEntity = LEI Capable Entity. Formal Organization + Formally Constituted Organizations ­ this is the super­category for all the non human kinds of legal entity.  May want to discuss the distinction between FormalOrganization and FormallyConstitutedOrganization.


Pete: What do the dotted lines mean?  DN: nothing formal, this is just for ease of reading.  Proposal to rename Formally Constituted Organization to Contractually Constituted Organization since the label was leading people to misunderstand the meaning of the concept as intended when we created it.  We need a JIRA issue for this name change.  The rationale when Mike and Elisa split FormalOrganiation into these two, was to distinguish between those organizations that are created as some kind of organization by means of a contract among the principals, versus entities with any kind of formalism, such as a Court.  This is the rational for having the two.


DN: So we agree on the proposal for a name change? PR: the definition is a bit lose, needs an explanatory note.  Need to firm up "some contract" to a more specific kind of contract for this.


Action:  MB will raise the JIRA and write out the proposed  issue and solution.  MB and DN will work together on improving the expnatory notes and definition on this.


NaturalPerson was intended to mean the same thing as LegallyCapable Person. The latter is defined in foundations as a logical union of Capable Adult and Emancipated Minor ­ that is someone who is viewed by the courts a capable of incurring liability.  This is about being able to incur liability in one's own right, as distinct from being able to enter into contracts.  The finer grained details may not be relevant, but we need to talk in terms of humans which are capable of liability in their own right.  The change would be to replace all instances in BE where we had NaturalPerson, and replace it with LegallyCapablePerson.  That’s what's in the JIRA issue.


The converse of this Legally Capable (human) person is Juridical Person ­ why not have the class which is the parent of both of these, which is the class of all things which are capable of liability in their own right. So the question is whether to remove this from the model. This was removed in the Pink, not only in David's branch. Hence David is framing this as a question of whether to reintroduce it rather than whether to remove it.


For discussion: Should we have or not have LegalPerson in Link as part of our submission to the OMG? Along with Juridical Person as the converse of LegallycapablePerson.  For instance a Corporation has legal personhood and is not a human so is an artificial or synthetic person.


Partnerships ­ some of these have some legal personhood. Some don't.  There will be differences between general partnerships where the partners have joint and several unlimited liability, whereas limited partnerships limit the liability of the partners, and so are capable of liability in their own right.  So some partnerships are legal persons and some are not.  An LLC is more like a corporation and has legal person as a juridical person.  A sole proprietorship is certainly not a legal person.  It is the owner of the sole proprietorship) which is a natural person, who carries the liability.In Wells they have a specific party relationship between the person and the sole proprietorship.

Q: is that an ownership relation or simply a party in role?   There is an owns relationship as the sole proprietorship is an asset of the person.


PR: Converse of, as above, what does this mean?  DN: This is a disjoint relationship.  PR:  Why disjoint with Legally Capable Person and not Person?  DN: No reason, that would also be a true statement. However, as children of LegalPerson, these are disjoint subclasses of that.


EK:  There is a registration agency at the highest levels internationally, called the U.N. ...


MB summarizes on Sovereign, Statutory Body, government Agency (NOT Government Entity) this is too blurry!) and so on.  Supranational entity may need a similar treatment to Statutory Body.  The government entities (as independent entities) are LEI capable.


PR:  We need to research what it is that would receive the LEI.  DN: The Agencies that would write contracts. The debt is incurred on the part of the sovereign or municipality of tribe (the legal entity) whereas the agency is as the name suggests merely acting as an agent.


 PR: Do we need a class of things that are LEI capable? Can't we leave that to the registrars?  Since the LEI is allocated to the independent thing, is there value in standing up a separate class for LEI Capable entity?  Especially given that GLEIF sometimes changes its story, and originally the eligibility was determined as a kind of relative thing but the thing that gets the LEI is an independent thing.  What about the previous question so whether a thing can have more than one LEI.


DN:  We went to GLEIF and they requested that we model what is expected not what might happen in the real data.


PR: the real data will have multiple LEIs.


DN:  Where there are duplicates there are processes for that, so FIBO should not allow for multiple LEIs, it should identify the exception. The GLEIF would have agree to this.


David proposes changing the name of LegalEntity to LEI Capable Legal Entity.  Also has a relationship to the jurisdiction in which it is defined as an LE.  Alternative proposal (also from DN) we could make LEI Capable Legal Entity a subclass of Legal Entity. Things like General Partnerships are not Legal Persons but are Contractually Capable Entities, since they can enter into contracts and hold assets. Similarly certain trusts would not get an LEI but are still contractually capable.


MB proposes we rename LegalEntity to ContractuallyCapableEntity.  We are able to add a restriction to Legal Person to state that it is capable of liability, and similarly we can add a restriction to LegalPerson to say that it is capable of entering into a contract.  Similarly LEI Capable?


Action:  MB to create a JIRA issue for LegalEntity to ContractuallyCapableEntity. 


PR but why do we need LEI Capable ­ why not leave that to the registrar and just track whether it has one or not?


DN:  The use case is that banks need to be able to identify which kinds of entities have LEIs so they can interface with the right registries and track it internally.  Longer term, every entity would have an LEI.  Right now only a limited subset of these things have an LEI.  There is also the debate about whether high net worth individuals have LEIs ­ or these may be the entities which they own and control e.g. a foundation or trust.  Are there any updates on that ongoing LEI discussion?


Kristin ­ not sure, but Karla McKenna now has a role as head of this in GLEIF, and has stated that discussions about individuals are off the table.


Action:   Kristin will contact Karla and get back to us on the current thinking,


DN: If High Net Worth individuals are added, this may not change the model in terms of entities that are eligible for an LEI, e.g. living trusts, which are legal entities, but are unlikely to be eligible for an LEI.  So there is a sub set relationship here.  Other trusts would be eligible for LEI. Certain trusts are organized in a state to be formed under law as an entity and may be subject to the same laws as corporations, including unlimited liability on the the entity.  Certain trusts are not considered functional (says DN), this is a new insight which David will further confirm with ore attorneys tomorrow. Some trusts are organized day 1 as businesses.  This is distinct from the conventional structure where assets are turned over to the trustee. So these are not relative things or functional businesses, but are independent things.


Action:  DN get view of attorneys on if all trusts are considered to be Functional Entities.


DN:  Similarly real estate investment funds, investment trusts, are organized on day 1 to perform these trust functions, and could be eligible for LEIs.  And, in some cases these odd trusts may have some sense of legal personhood i.e., the liability does not flow to the beneficiaries or trustees, but is held by the trust.  Relative Thing would be e.g. a business which performs different functions e.g. as an investment company. The legal form doesn’t change when the function changes. That’s not true for a business trust as these exist explicitly for the purpose of investment or business activities and can never change those attributes.  If the attributes are immutable then these are an independent thing


Action: David will find out if other attorneys agree.


DN:  Meanwhile a living trust is more clear cut.  These would not be LEI capable.  This is another reason that we would split LEI Capable Legal Entity from Contractually Capable Person, and make the former a parent of the latter.  There is also a faceted hierarchy ­ a business trust may be revocable or irrevocable.  Any kind of trust is either revocable or irrevocable, so if we can add the restriction for this we can classify them accordingly.  Typically a charitable trust is is irrevocable. The Trustee can revoke, amend or sunset the trust when they wish.  An irrevocable trust does not have this feature.


All trusts must have a sunset date.  This must be in the Trust Agreement A common attribute for ll trusts. (is this US specific or global).  A Trust company however is a functional business entity ­ some legal form that will perform trust services. There are a couple of these in the Functional Entities hierarchy. 


EK:  There are 2 kinds of trusts that are functional entities in FBC ­ a unit trust and one other.


DN:  Some things are framed as trusts as a legal form.  So actually all trusts are a legal form, but the trustee is a party in a role, and the company which performs that function is a functional entity.


MB:   We have to make sure not to get our wires cross between contract parties that are trustee, etc. versus functional entities that are trust fund managers etc.  We must not cross the lines between the 2 kinds of relative thing.


Action: Mb and DN will come back with additional proposals to partition some of these a little more crisply with some of the abstractions, the restrictions we have talked about today.


We will add the property restrictions and make sure that everything that is shown as a set of those kinds of things are really a member of that set. Removing those which are not, will give us a crisp model.


David did the changes in OWL or Legallycapable Person and switched out Natural Person.  There were some nuances David will like to discuss on these. The class LegalEntityOrLegallyCapablePerson (not seen before) needs review.


Action items

  • Mike Bennett  MB will raise the JIRA and write out the proposed  issue and solution.  MB and DN will work together on improving the expnatory notes and definition on this. BE-55 - Getting issue details... STATUS
  • Mike Bennett  MB to create a JIRA issue for LegalEntity to ContractuallyCapableEntity BE-56 - Getting issue details... STATUS
  • Unknown User (kristin.hochstein) Kristin will contact Karla and get back to us on the current thinking BE-57 - Getting issue details... STATUS ,
  • Dave Newman DN get view of attorneys on if all trusts are considered to be Functional Entities BE-58 - Getting issue details... STATUS .
  • Dave Newman  Mb and DN will come back with additional proposals to partition some of these a little more crisply with some of the abstractions, the restrictions we have talked about today. BE-59 - Getting issue details... STATUS