Constructive Ownership Attribution Rules
Alex Howard
7 min read • Nov 10, 2024
It is important to understand the regulations surrounding constructive ownership in order to establish a controlled group. These laws state that company stock should be considered and owned by certain related parties, as well as the person holding it directly.
Attribution Regulations for Controlled Groups
General Rules for Parent-Subsidiary and Brother-Sister Associations:
Options on Acquiring Stock: Any option an individual has to get stock is treated as if they own such stock.
Partnerships: If a partnership owns stock, anyone with more than 5% or greater interest (in capital or gains) is deemed to own that proportionate share of the company’s stock.
Estates and Trusts: With respect to estates and nonqualified trusts, any beneficiary having at least 5% actuarial interest shall be regarded as owning these shares up to their respective interests as determined on an actuarial basis.
Grantor Trusts: Where stocks are held by grantor trusts, the grantors will be considered owners.
Additional Guidelines for Brother-Sister Associations:
Corporate Stock Ownership: An individual who possesses 5% or more corporation shares must also be recognized as having equivalent amounts in other companies owned by them.
Spousal Ownership: Unless legally separated from each other, spouses are supposed to have joint ownership rights over shared investments including stocks; thus if one spouse holds these assets then they’re considered being held by another one too.
Parent-Child Ownership: Parents are said to own those shares which are registered under their children’s names provided the kids haven’t reached 21 years of age yet while vice versa applies here too.
Ex) Parents also own any stocks belonging to minors who happen to not exceed this age bracket but there is an existing relationship between them either through birth or adoption process etc.
Family Memberships: In cases where one person owns over 50% of a corporation’s equity interests, he/she becomes deemed the owner thereof together with others such as grandparents, grandchildren, and children who are above 21 years old.
Application of Attribution Rules
These rules of attribution are used to determine whether or not various entities constitute a controlled group. Business owners need to have an understanding of these regulations in order for them to meet different regulatory standards and avoid any ownership or control-related conflicts that may arise.