5% Owner

[cammy9]

Our 401k plan has 2 employers in it (the parent company owns 80% of the subsidiary) and is considered a controlled group. When determining 1% and 5% owners, would you consider each company separately or just consider the parent company?

The example is-

If person A owns 2% of the parent company and person B owns 6% of the subsidiary, is person A a 1% owner and person B a 5% owner?

Obviously, person A also owns a percentage of the subsidiary because the parent company owns 80% of the subsidiary but not sure if you would figure out this percentage and add the 2 together? Or something else?

[Mike Preston]

Separately. Person A is a 1% owner and person B is a 5% owner. And, yes, person A is considered to own its share of the subsidiary as long as there isn't a minimum threshold for attribution. If there is, I'm sure someone will mention it.

[cammy9]

Thanks, Mike. It just seems strange that someone who owns 5% of the subsidiary and none of the parent company would have a higher ownership percentage than someone who owns even a small percentage of the parent company. But I guess those are the rules!

[ETA Consulting LLC]

Separately. Person A is a 1% owner and person B is a 5% owner. And, yes, person A is considered to own its share of the subsidiary as long as there isn't a minimum threshold for attribution. If there is, I'm sure someone will mention it.

It's 5%; not more than, but just 5%.

[Mike Preston]

Its more than, not just, 5%. Really.

[ETA Consulting LLC]

Its more than, not just, 5%. Really.

Not sure if this was sarcasm, but ownership from Corporations or Partnerships to individuals only apply if the individuals owns at least 5% of the company.

As you know, a 5% owner is defined as owning 'more than' 5%. So, it's not "5% Owner" where the attribution applies, but merely owning at least 5%.

I just thought that was worth emphasizing when attempting to provide an answer.

Good Luck!

[Mike Preston]

I see, you were answering my query, not responding to the original assertion. I looked it up and my query should have been answered as follows:

1) There is no minimum threshold for direct ownership. So, A is considered to own the 2% that A actually owns of the parent.

2) There is an implication that parent directly owns some portion of sub (otherwise it shouldn't be described as parent-sub). Perhaps parent owns 94% of sub and person B owns the other 6%, directly.

3) If so, then anybody who owns 5% or more of parent (which neither A nor B does) would be considered to own their pro-rata share of parent's ownership in B.

None of that matters in this case.

Sorry for the misdirect.