Current through Register Vol. XLI, No. 38, September 20, 2024
15A.1. Certain
stock excluded. - For purposes of W. Va. Code '11-13C-14
and the regulations thereunder, the term "stock" does not include:
15A.1.1.Nonvoting stock which is limited and
preferred as to dividends, and
15A.1.2.Treasury stock.
15A.2. Stock treated as excluded stock.
15A.2.1.Parent-subsidiary controlled group. -
If a corporation (hereinafter in this paragraph referred to as "parent
corporation") owns fifty percent (50%) or more of the total combined voting
power of all classes of stock entitled to vote or fifty percent (50%) or more
of the total value of shares of all classes of stock in another corporation
(hereinafter in this paragraph referred to as "subsidiary corporation"), the
provisions of subparagraph 15A.2.2 shall apply. For purposes of this
subparagraph, stock owned by a corporation means stock owned directly plus
stock owned with the application of the constructive ownership rules of
subsections 15B.2.1 and 15B.2.4 of these regulations, relating to options and
attribution from corporations. In determining whether the stock owned by a
corporation possesses the requisite percentage of the total combined voting
power of all classes of stock entitled to vote of another corporation, see
subparagraph 15.1.6 of these regulations.
15A.2.2.Stock treated as not outstanding. -
If the provisions of this subparagraph apply, then for purposes of determining
whether the parent corporation or the subsidiary corporation is a member of a
parent-subsidiary controlled group of corporations within the meaning of
subparagraph 15.1.2, the following stock of the subsidiary corporation shall,
except as otherwise provided in paragraph 15A.3 of this Section, be treated as
if it were not outstanding:
15A.2.2.1.Plan of
deferred compensation. - Stock in the subsidiary corporation held by a trust
which is part of a plan of deferred compensation for the benefit of the
employees of the parent corporation or the subsidiary corporation. The term
"plan of deferred compensation" shall have the same meaning such term has in
I.R.C. '406(a)(3) and the regulations thereunder.
15A.2.2.2.Principal stockholders and
officers. - Stock in the subsidiary corporation owned (directly and with the
application of the rules contained in subsection 15B.2 of these regulations) by
an individual who is a principal stockholder or officer of the parent
corporation. A principal stockholder of the parent corporation is an individual
who owns (directly and with the application of the rules contained in
subsection 15B.2) five percent (5%) or more of the total combined voting power
of all classes of stock entitled to vote or five percent (5%) for more of the
total value of share of all classes of stock of the parent corporation. An
officer of the parent corporation includes the president, vice-presidents,
general manager, treasurer, secretary, and comptroller of such corporation, and
any other person who performs duties corresponding to those normally performed
by persons occupying such positions.
15A.2.2.3.Employees. - Stock in the
subsidiary corporation owned (directly and with the application of the rules
contained in subsection 15B.2 of these regulations) by an employee of the
subsidiary corporation if such stock is subject to conditions which
substantially restrict or limit the employee's right (or if the employee
constructively owns such stock, the direct owner's right) to dispose of such
stock and which run in favor of the parent or subsidiary corporation. In
general, any condition which extends, directly or indirectly, to the parent
corporation or the subsidiary corporation preferential rights with respect to
the acquisition of the employee's (or direct owner's) stock will be considered
to be a condition described in the preceding sentence. It is not necessary, in
order for a condition to be considered to be in favor of the parent corporation
or the subsidiary corporation, that the parent or subsidiary be extended a
discriminatory concession with respect to the price of the stock. For example,
a condition whereby the parent corporation is given a right of first refusal
with respect to any stock of the subsidiary corporation offered by an employee
for sale is a condition which substantially restricts or limits the employee's
right to dispose of such stock and runs in favor of the parent corporation.
Moreover, any legally enforceable condition which prohibits the employee from
disposing of his stock without the consent of the parent (or a subsidiary of
the parent) will be considered to be a substantial limitation running in favor
of the parent corporation.
15A.2.2.4.Controlled exempt organization. -
Stock in the subsidiary corporation owned (directly and with the application of
the rules contained in subsection 15B.2 by an organization (other than the
parent corporation) --
15A.2.2.4a.To which
I.R.C. '501 (relating to certain educational and charitable organizations which
are exempt from tax) applies, and
15A.2.2.4b.Which is controlled directly or
indirectly by the parent corporation or subsidiary corporation, by an
individual, estate, or trust that is a principal stockholder of the parent
corporation, by an officer of the parent corporation, or by any combination
thereof. The terms "principal stockholder of the parent corporation" and
"officer of the parent corporation" shall have the same meanings as in
subsection 15A.2.2.2 of this subparagraph. The term "control" as used in this
clause means control in fact and the determination of whether the control
requirement of this clause is met will depend upon all the facts and
circumstances of each case; without regard to whether such control is legally
enforceable and irrespective of the method by which such control is exercised
or excisable.
15A.2.3.Brother-sister controlled group. - If
five (5) or fewer persons (hereinafter referred to as common owners) who are
individuals, estates, or trusts own (directly and with the application of the
rules contained in subsection 15B.2 of these regulations) stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock entitled to vote or fifty percent (50%) or more of the total value of
shares of all classes of stock in a corporation, the provisions of subparagraph
15A.2.4 of this subsection shall apply. In determining whether the stock owned
by such person or persons possesses the requisite percentage of the total
combined voting power of all classes of stock entitled to vote of a
corporation, see paragraph 15.1.6 of these regulations.
15A.2.4.Stock treated as not outstanding. -
If the provisions of this subparagraph apply, then for purposes of determining
whether a corporation is a member of a brother-sister controlled group of
corporations within the meaning of paragraph 15.1.3 of these regulations, the
following stock of such corporation shall, except as otherwise provided in
subsection 15A.3 of this section, be treated as if it were not outstanding:
15A.2.4.1.Exempt employees' trust. - Stock in
such corporation held by an employees' trust described in I.R.C. '401(a) which
is exempt from tax under I.R.C. '501(a), if such trust is for the benefit of
the employees of such corporation.
15A.2.4.2.Employees. - Stock in such
corporation owned (directly and with the application of the rules contained in
subsection 15B.2 of these regulations) by an employee of such corporation if
such stock is subject to conditions which run in favor of a common owner of
such corporation (or in favor of such corporation) and which substantially
restrict or limit the employee's right (or if the employee constructively owns
such stock, the record owner's right) to dispose of such stock. The principles
of subparagraph 15A.2.2.3 of this paragraph shall apply in determining whether
a condition satisfies the requirements of the preceding sentence. Thus, in
general, a condition which extends, directly or indirectly, to a common owner
or such corporation preferential rights with respect to the acquisition of the
employee's (or record owner's) stock will be considered to be a condition which
satisfies such requirements. For purposes of this subdivision, if a condition
which restricts or limits an employee's right (or record owner's right) to
dispose of his stock also applies to the stock in such corporation held by such
common owner pursuant to a bona fide reciprocal stock purchase arrangement,
such condition shall not be treated as one which restricts or limits the
employee's (or record owner's) right to dispose of such stock. An example of a
reciprocal stock purchase arrangement is an agreement whereby a common owner
and the employee are given a right of first refusal with respect to stock of
the employer corporation owned by the employee in the event that the
corporation should discharge the employee for reasonable cause, the purchase
arrangement would not be reciprocal within the meaning of this
subdivision.
15A.2.4.3.Controlled
exempt organization. - Stock in such corporation owned (directly and with the
application of the rules contained in subsection 15B.2 of these regulations) by
an organization --
15A.2.4.3a.To which I.R.C.
'501(c)(3) (relating to certain educational and charitable organizations which
are exempt from tax) applies, and
15A.2.4.3b.Which is controlled directly or
indirectly by such corporation, by an individual, estate, or trust that is a
principal stockholder of such corporation, by an officer of such corporation,
or by any combination thereof. The terms "principal stockholder" and "officer"
shall have the same meanings in this subdivision as in subparagraph
15A.2.4.2.2. The term "control" as used in this subdivision means control in
fact and the determination of whether the control requirement of 15A.2.4b of
this subdivision is met will depend upon all the facts and circumstances of
each case, without regard to whether such control is legally enforceable and
irrespective of the method by which such control is exercised or
exercisable.
15A.2.5.Other controlled groups. - The
provisions of paragraphs 15A.2.1 through 15A.2.4 of this subsection shall apply
in determining whether a corporation is a member of a combined group (within
the meaning of paragraph 15.1.4 of these regulations or an insurance group
(within the meaning of paragraph 15.1.5). For example, under paragraph 15.1.4
in order for a corporation to be a member of a combined group such corporation
must be a member of a parent-subsidiary group or a brother-sister group.
Accordingly, the excluded stock rules provided by this paragraph are applicable
in determining whether the corporation is a member of such group.
15A.2.6.Meaning of employee. - For purposes
of this section, and Sections
110-13C-15B
and
110-13C-15C
of these regulations, the term "employee" has the same meaning such term is
given in I.R.C. '3306(i) (relating to definitions for purposes of the Federal
Unemployment Tax Act). Accordingly, the term employee as used in such sections
includes an officer of a corporation.
15A.2.7.Examples. - The provisions of this
paragraph subsection 15A.2 may be illustrated by the following
examples:
Example (1). Corporation P owns seventy (70) of the one
hundred (100) shares of the only class of stock of corporation S. The remaining
shares of S are owned as follows: 4 shares by Jones (the general manager of P),
and twenty-six (26) shares by Smith (who also owns five percent (5) of the
total combined voting power of the stock of P). P satisfies the fifty percent
(50%) stock ownership requirement of subparagraph (l) of this paragraph with
respect to S. Since Jones is an officer of P and Smith is a principal
stockholder of P, under subparagraph 15A.2.2.2, the S stock owned by Jones and
Smith is treated as not outstanding for purposes of determining whether P and S
are members of a parent-subsidiary controlled group of corporations within the
meaning of paragraph 15.1.2 of Section
110-13C-15
of these regulations. Thus, P is considered to own stock possessing one hundred
percent (100%) (70+70) of the total voting power and value of all the S stock.
Accordingly, P and S are members of a parent-subsidiary controlled group of
corporations.
Example (2). Assume the same facts as in example (1) and
further assume that Jones owns fifteen (15) shares of the one hundred (100)
shares of the only class of stock of corporation S-1, and corporation S owns
seventy-five (75) shares of such stock. P satisfies the fifty percent (50%)
stock ownership requirement of subparagraph (1) of this paragraph with respect
to S-1 since P is considered as owning fifty-two and one-half percent (52.5)
(seventy percent 70% x seventy-five percent (75%) of the S-1 stock with the
application of paragraph (b)(4) of '1.1563.3. Since Jones is an officer of P,
under subparagraph 15A.2.2.2, the S-1 stock owned by Jones is treated as not
outstanding for purposes of determining whether S-1 is a member of the
parent-subsidiary controlled group of corporations. Thus, S is considered to
own stock possessing eighty-eight and two tenths percent (88.2%) (75)85) of the
voting power and value of the S-1 stock. Accordingly, P, S, and S-1 are members
of a parent-subsidiary controlled group of corporations.
Example (3). Corporation X owns sixty percent (60%) of the
only class of stock of corporation Y. Davis, the president of Y, owns, the
remaining 40 percent of the stock of Y. Davis has agreed that if he offers his
stock in Y for sale he will first offer the stock to X at a price equal to the
fair market value of the stock on the first date the stock is offered for sale.
Since Davis is an employee of Y within the meaning of I.R.C. '3306(i), and his
stock in Y is subject to a condition which substantially restricts or limits
his right to dispose of such stock and runs in favor of X, under subparagraph
15A.2.2.3, such stock is treated as if it were not outstanding for purposes of
determining whether X and Y are members of a parent-subsidiary controlled group
of corporations. The result would be the same if Davis's wife, instead of
Davis, owned directly the forty percent (40%) stock interest in Y and such
stock was subject to a right of first refusal running in favor of X.
15A.3. Exemption.
15A.3.1. General. - If stock of a corporation
is owned by a person directly or with the application of the rules contained in
section
110-13C-15B.2
of these regulations, and such ownership results in the corporation being a
component member of a controlled group of corporations on a December
thirty-one, then the stock shall not be treated as excluded stock under the
provisions of subsection 15A.2 of this section if the result of applying such
provisions is that such corporation is not a component member of a controlled
group of corporations on such December thirty-one.
15A.3.2.Illustration. - The provisions of
this paragraph may be illustrated by the following example:
Example. On each day of 1990, corporation P owns directly
fifty (50) of the one hundred (100) shares of the only class of stock of
corporation S. Jones, an officer of P, owns directly thirty (30) shares of S
stock and P has an option to acquire such thirty (30) shares of S stock owned
directly by Jones is treated as not outstanding, the result is that P would be
treated as owning stock possessing only seventy-one percent (71%) (50)70) of
the total voting power and value of S stock, and S would not be a component
member of a controlled group of corporations on December 31, 1965. However,
since P is considered as owning the thirty (30) shares of S stock with the
application of paragraph 110-13C-15B.2.1 of these regulations, and such
ownership plus the S stock directly owned by P (50 shares) results in S being a
component member of a con-trolled group of corporations on December 31, 1965,
the provisions of this paragraph apply. Therefore, the provisions of paragraph
15A.2.2.2 of this section do not apply with respect to the thirty (30) shares
of S stock, and on December 31, 1990, S is a component member of a controlled
group of corporations consisting of P and S.
