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Question 18: Can I use options to break up a controlled group? Suppose, for example, John owns all 100 shares of Corp. A and 85 of the 100 shares of Corp. B, a classic brother-sister controlled group. (The remaining 15 shares of Corp B is owned by an unrelated party, Xavier.) Corp. B grants Charlie (an unrelated party) an option to buy 10 shares. Now John owns 85/110s (77%) of Corp B, because Charlie is deemed to own the 10 shares, and there isn't a controlled group. |
Answer: No. Neither attribution through options nor any of the other attribution rules can have the effect of dividing a controlled group. They do not change the ownership prior to the attribution, they merely create an alternative stock ownership. A controlled group exists if the ownership tests are met either under the actual ownership or under an alternative ownership through the attribution rules. |
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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