Current through Register Vol. 48, No. 38, September 20, 2024
a) The individuals
claiming ownership and control of the applicant business must own at least 51%
of the business.
b) The ownership
shall be real, substantial and continuing and not simply a matter of form.
"Real" is a bona fide investment in the business done at arm's length and in
good faith. "Substantial" is the level of investment necessary to initiate or
acquire the particular business in light of its value, the business field, the
organization of the concern, and the potential sources of outside financing.
The following factors, among others, are weighed together to help determine
whether ownership is real, substantial, continuing and not a matter of form.
1) How ownership was obtained, including, but
not limited to, purchase, gift or inheritance.
2) How substantial was the contribution
toward ownership in terms of expertise, money or other such factors? The
following are some examples of factors that may indicate insufficient
contribution:
A) Minimal cash outlay or
personal investment;
B) A promise
or agreement to contribute capital;
C) A note payable to the firm or other owners
who are not eligible group members;
D) Contributions for services rather than
capital, except when services are unique, specialized or of a value
commensurate with the ownership value of the services;
E) Payment of contribution with funds loaned
by a non-eligible group, former employer or stockholder;
F) No recourse loans when the borrower
assumes no liability for repayment upon default; and
G) No recourse stock purchases in which the
purchaser assumes no liability upon default of payment other than transaction
of shares.
3) How the
applicant holds ownership. In terms of stock holdings, the following are
factors that may indicate ownership is not as stated:
A) Minimal cash outlay or personal
investment;
B) A promise or
agreement to buy stock;
C) Stock
issued, but not purchased;
D) Stock
certificates purchased but not in the possession of the applicant; or
E) Stock held in trust.
4) The applicant must provide documentary
proof of ownership, including, but not limited to, the following:
A) Canceled checks or bookkeeping
entries;
B) Signed purchase
agreements;
C) Stock certificates,
transfer ledgers and stockholder agreements;
D) Partnership agreements;
E) Profit sharing agreements; and
F) Buy-out-right agreements.
