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SROF Until Sale of Sister Corporation


EBECatty

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Say employee works for Corporation A. His employment agreement is only with Corporation A and he only performs services for Corporation A. He owns a portion of Corporation B.

Corporation B is in a brother-sister controlled group with Corporation A based on overlapping ownership. Both corporations operate in very similar industries, just different aspects of the same industry.

Corporation A's employment agreement provides a change in control payout to employee if Corporation A undergoes a change in control. Corporation A also wants to give employee a change in control payout if Corporation B (which employee does not work for, but owns part of) undergoes a change in control. Assume the payment (withholding, taxes, reporting, etc.) comes from Corporation A.

I don't think the change in control of Corporation B would be a 409A-permissible payment event for the employee of Corporation A. The "relevant corporation" rules are defined in terms of "corporations" and do not seem to extend to other members of the "relevant corporation's" brother-sister controlled group.

However, the definition of "substantial risk of forfeiture" speaks in terms of a business-related condition of the "service recipient," which does include brother-sister controlled group members. That would seem to allow short-term deferral treatment as long as the payment is shortly after the change in control.

Assuming there's actually a substantial risk that Corporation B will not be sold, thoughts on using the short-term deferral rule by saying the successful sale of Corporation B is a business-related goal of the entire controlled group, which is the relevant "service recipient"?

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