Control Group

[pixmax]

I am trying to verify control group, no family attribution.  

Company A  - has owner 1 and 2 owning 50% each

Company B - has same two owners and ownership %

Company C - has same two owners and ownership %

Company D - has the same two owners above owning 27.5% each.  Owner 3 has 35% and Owner 4 and 5 each own 5% each

The two owners only receive compensation from Company A but of course are officers of all.

I was provided an income interest repurchase agreement from Company 4 which states Owner 3 (35%) has the right to sell his vested portion (there is a vesting schedule and he is currently 0% vested), but it must be sold back to the company.  

I feel Company D is part of the control group, based on that Owner 1 and 2 have option to repurchase.   The client feels differently and instead of seeking Legal Counsel per my request they have asked their Accountant to review.  The Accountant is telling them that their is no attribution because Owners 1 and 2 are not family.  

Am I missing something?  Thoughts?

[Luke Bailey]

pixmax, in your third to last paragraph, when you say "Company 4" you mean "Company D?" And the 35% "owned" by Owner 4 is subject now to a substantial risk of forfeiture? Did Owner 4 make an 83(b) election?

In your second to last paragraph is the "option" that you are referring to in favor or Owners 1 and 2 the company's obligation to purchase the stock from Owner 4 if Owner 4 puts it to them? I am not seeing an "option" here.

 

[pixmax]

Yes, Company D.  Company D owner of 35% (owner 3) has signed a Income Interest Repurchase Agreement.  I am not aware of a 83b election.  Should owner 3 sell his vested percent, the Balance of his interest is forfeited and purchased back by the Company (D).  The Same agreement is in place for the additional 5% owners of Company D.

[Mike Preston]

Look up what excluded shares/stock means. You are correct. 

[Luke Bailey]

 

5 hours ago, pixmax said:

Yes, Company D.  Company D owner of 35% (owner 3) has signed a Income Interest Repurchase Agreement.  I am not aware of a 83b election.  Should owner 3 sell his vested percent, the Balance of his interest is forfeited and purchased back by the Company (D).  The Same agreement is in place for the additional 5% owners of Company D.

pixmax, based on your information, I'm not seeing that Owners 1 and 2 hold options on 3's stock. In all honesty, these situations are very complicated. What you are thinking of, I think are call options, but it sounds like 3 has a put, maybe company has right of first refusal. Would really need to examine documents closely, so I'm just going to say, "It's complicated," and if I were you I would just make sure it was clear that company is relying on its legal counsel, not you, for this determination.