Equity Owner vs. Non-Equity Owner

[Dennis Povloski]

A law firm has 3 partners and one employee has been described as a "non-equity owner" that owns 10% of the business. His compensation is based on his ownership percentage.

For qualified plan purposes, is there any difference between an "non-equity owner" and an "equity owner"?

From what I've read, non-equity owner sounds like a title more than actual ownership in the firm. There is no buy in, and their authority is limited, so I'm not sure if this is a true owner or not?

[Bird]

I don't think it matters, unless your plan uses those definitions, e.g. in group definitions for allocating contributions.

[Kevin C]

A law firm has 3 partners and one employee has been described as a "non-equity owner" that owns 10% of the business. His compensation is based on his ownership percentage.

That sounds like a 10% profits interest to me.

1.416-1, T-17 Q. Who is a 5-percent owner of the employer?

A. If the employer is a corporation, a 5-percent owner is any employee who owns (or is considered as owning within the meaning of section 318) more than 5 percent of the value of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation. If the employer is not a corporation, a 5-percent owner is any employee who owns more than 5 percent of the capital or profits interest in the employer. The rules of subsections (b), ©, and (m) of section 414 do not apply for purposes of determining who is a 5-percent owner.

The same definition is used to determine HCE's.