Business owners have wide discretion in determining the best corporate structure to use in setting up their businesses. Some use a single entity, while others use multiple entities, which can take the form of corporations, partnerships, and limited liability companies. Regardless of form, however, if a business owner uses multiple entities to structure their business, then the different entities may need to be combined for certain employee benefit purposes under applicable Internal Revenue Service (IRS) and Department of Labor (DOL) rules.
Those controlled group rules describe the conditions under which common ownership, or common control, among businesses result in a single “controlled group,” under which the entire group would be treated as if it were a single entity or employer. This would be important, for example, if an employer wanted to provide better (discriminatory) employee benefits to its employees at one entity as compared to a related entity. If the entities must be aggregated as a single “controlled group,” then providing better benefits to employees at one entity will become much more difficult, unless that entity can pass applicable discrimination testing measuring benefits at all of the controlled group members.