Controlled Group - change in ownership / mgmt function?

[jmartin]

- The plan is made up of two companies (A & B). Company A provides mostly financial and some administrative services to company B. Companies A & B are separate corporations.

- Owner 1 owns 100% of both companies. Owner 1 sold his "ownership" of Company B to Owners 2, 3, and 4. "The new stockholders are not controlling or voting stockholders. The "ownership" is purely for the receipt of Company B's income distributions and dividends. The only voting and controlling owner is Owner 1"

- When Owner 1 was the only key employee, the plan was not top heavy (just under 60%). If Owners 2-4 are considered key's the plan would be come top heavy (they contribute 401k)

- If they become Key, then additional contributions would have to be made (3% top heavy less match). Plan is audited plan, so the additional contribution, while small in terms of a percent, would still amount to a significant expense. They only want to contribute the match.

Question: Are the new "owners" considered to be actual owners of company B? Can it be considered that company A performs a management function over company B?

Ideally if only owner 1 is the key, then they should be in good shape. Owner 1 does not contribute 401k.

[Belgarath]

I'm a little confused as to the "ownership." Did he sell only the non-voting stock? Does he own any stock at all?

[jmartin]

Our understanding is that the only stock that was sold was the non voting stock. Owner 1 said he was the only voting and controlling owner of either company. Does that help?

[Belgarath]

Ok, then it depends upon the VALUE of their stock, and possibly their compensation level if you are looking at the 1% ownership test. Take a look at 1.416-1, Q&A's 16-19. I think this will give you the information you are looking for.