23 Sep / Controlled Group Businesses
Your Controlled Group
As companies grow often they choose to set up additional entities, purchase other companies or combine their operations with other businesses. These types of combinations can complicate issues with the IRS, the Department of Labor, The Fair Standards Labor Act, ERISA, and the Affordable Care Act.
What is a Controlled Group
A controlled group for business purposes is a combination of two or more businesses that are under common control. This is defined more specifically under IRC 414. This applies to partnerships, proprietorships, corporations and even trusts. There are two primary types of combinations that can create a controlled group.
- Parent – subsidiary
Parent – Subsidiary
When one or more business entities is connected through ownership with a common parent, this creates a parent – subsidiary controlled group. The parent company must own 80% in at least one other business. If 80% of a group of multiple businesses is owned by one or more companies then that creates a controlled group as well.
Brother -Sister Group
A brother Sister controlled group is created when two or more entities have common owners. A brother -sister is created when five or fewer owners, control two or more companies. The controlling interest occurs when 80% of more of the ownership of a business exhibits more than 50% control of the business.
Controlled Groups and the Affordable Care Act
Companies who have common ownership need to examine these types of controlled group issues when determining if they are required to comply with the Affordable Care Act. Generally companies with 50 or more full time employees are required to comply with the act. The related party controlled group issues are likely to create situations where any single employer in the group may not have 50 or more employees. But it could create a situation where multiple companies in the controlled group combined would result in a total full time employee count of more that 50 employees. And with the penalty for not complying with the AFA being $2,000 per each full time employee, a incorrect assessment, could really put stress on a company. That is why it is so important for businesses to examine their ownership structures when determining there requirements under the AFA and other DOL and ERISA laws as well.