Controlled group

Two brothers each own 50% of corp A and 50% of corp B.  Corp A & B are completely different business entities and have no business between the two.  Because their common ownership is 100% of both corps, I am assuming they are a controlled group, is that correct?

Correct. And it doesn't matter that they are brothers.

What if they changed the ownership to one owns 25% of company A and 75% of company B, and the other is reversed so the common ownership is 25% each.  Would that get them out of the controlled group status?

4 hours ago, Mark Miller said:

What if they changed the ownership to one owns 25% of company A and 75% of company B, and the other is reversed so the common ownership is 25% each.  Would that get them out of the controlled group status?

 

Yes. Assuming no stock attribution any other way. That would be an interesting discussion.

I agree a 75/25 split would work, assuming no attribution (including options) or other application of the stock-exclusion rules. This could involve a review of the shareholder agreements, buy-sell agreements, etc.

Also, unless the values of the two businesses are (and remain) identical, my guess is the owners will try to find some way to "equalize" the value of their ownership through something that may implicate one or more of the attribution/exclusion rules.  

Controlled group ownership can be premised on the voting power or the value of the stock owned, so changing voting share ownership to 75/25 may not break up the controlled group if there are different classes of shares that give the owners a closer-to-50/50 economic split.

2 hours ago, EBECatty said:

Controlled group ownership can be premised on the voting power or the value of the stock owned, so changing voting share ownership to 75/25 may not break up the controlled group if there are different classes of shares that give the owners a closer-to-50/50 economic split.

Such a good point! This gets missed a lot - gets pretty tricky sometimes, which is one of the many reasons why we always refer them to ERISA counsel.

Also beware of options, which can be considered ownership.