Controlled Group?

[Guest RBlaine]

I'm waiting for my copy of Who's the Employer so I'm hoping to get some help with this.

3 owners and 4 companies. Companies A, B and C are incorporated, Company D is Sole Proprietorship. Familial relationships are that Owner 2 is the mother of Owner 1 and Owner 3 is the adult son of Owner 1.

Company A

Owner 1 50%

Owner 2 50%

Company B

Owner 1 50%

Owner 3 50%

Comany C

Owner 2 50%

Owner 3 50%

Company D

Owner 1 100%

Owners 1's wife does not have any ownership in any of the companies. She is the Secretary/Treasurer of Companies A, B, and C. She is also an employee of those 3 companies.

If you attribute ownership to the spouse of Owner 1, you end up with a grid of Companies A and B with Owner 1 and his spouse each owning 50% of Companies A and B, which would give you that those 2 companies are a controlled group while Companies C and D are not. Is this the proper way to constructively attribute Owners 1's shares and are those shares then used to make the spouse an owner for purposes of determining that there is a controlled group?

Grid:

Shareholders A B Row Min

Owner 1 50% 50% 50%

Spouse 50% 50% 50%

Totals 100% 100% 100%

It doesn't seem right to me. A friend told the that it isn't right, but he didn't know she was a officer/employee of the companies. I'm not sure it matters.

[R. Butler]

No one has ever confused me with Derrin Watson, but at first glance I don't see any controlled groups. Neither Grandma, Dad or Adult Boy own more than 50% of A,B or C thus no attribution. Without attribution there isn't enough common owenership to get you to a controlled group.

[SoCalActuary]

Now we ask the affiliated service group questions:

Are they providing management services to each other? Is there any significant transfer of revenue between companies? Are any of these service org's?

[jquazza]

A priori, it doesn't seem like a controlled group. One thing you have to pay particular close attention to in a case like this would be Options. If any of these owners has any sorts of options to purchase the other owner's interest, suddenly they are considered more than 50% owners and the attribution rules change.

[Belgarath]

Agree with prior posts. There are also fun things like voting vs. nonvoting stock that can get you burned in a hurry. That's why I always recommend an attorney's opinion.