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Question 160: Company A and Company B each own 50% of the common stock of Company C. The common stock is the only class of voting stock of Company C. Pursuant to a shareholders' agreement between Company A and Company B, Company A has the sole right to appoint the directors of Company C. Are Company A and Company C in a controlled group? | |
Answer: According to the IRS, yes, they are a parent-subsidiary controlled group.
That sounds to me like what you have in your situation. Of course, shareholders can vote on things other than election of directors, such as whether to dissolve the corporation, but most of a shareholder's voting rights are tied up in the ability to elect directors. Where one shareholder has the sole right to choose the board, I think it is likely that the IRS would hold that the shareholder has 100% of the voting power (and certainly more than 80%). I discuss this issue, and give further examples, in Chapter 6 of my book Who's the Employer. |
Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.
The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.
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