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Simple English definitions for legal terms
controlled group
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A quick definition of controlled group:
A controlled group is when two or more companies have most of their stock owned by five or fewer people. This means they have to follow special tax rules. It's like a big family of companies that have to work together.
A more thorough explanation:
A controlled group is a term used in tax law to describe two or more corporations whose stock is mostly owned by five or fewer people. These corporations are subject to special rules for calculating their tax liability. Examples of controlled groups include parent-subsidiary or brother-sister groups.
- A parent company owns 80% of the stock of its subsidiary company. The two companies are considered a controlled group.
- Two brothers each own 40% of the stock in two separate companies. The two companies are considered a controlled group.
These examples illustrate how a controlled group is formed when a small group of people own a significant portion of the stock in multiple corporations.