<\/p>\n
First, to the man that owns more than one business: congratulations and more power to you. \u00a0I applaud those who are able to pull off this feat.<\/p>\n
Second, there’s a funny little thing that happens on the workers comp side of things when this\u00a0man owns more than one business. \u00a0It’s caused by the Common Majority Ownership rule.<\/p>\n
Common Majority Ownership is the rule that ties different business organizations together\u00a0– whether they be sole proprietorships, partnerships, LLCs, or corporations (or any other conceivable organization).<\/p>\n
What it means is that if Person A owns more than 50% of ABC Corp, and more than 50% of XYZ Corp, both the state of CA and your insurance companies, when it comes to Workers Comp, will treat both companies as one business entity.<\/p>\n
Right now you may be asking: what does it mean to “treat both companies as one business entity” for workers comp?<\/p>\n
It means that both ABC Corp and XYZ Corp will get the same Experience Modification and that no insurance companies will insure one without insuring the other.<\/p>\n
For the “How Does That Work?” type of people (like me), it works like this: every business entity that applies for workers comp insurance with an insurance company must disclose what people own that business entity. \u00a0Once it is discovered that a person owns more than 50% of more than one company, the Workers Comp Insurance Rating Bureau will assign them the same bureau numbers, tying them together forever, or until the ownership changes.<\/p>\n
In our example above, both ABC Corp and XYZ Corp are owned by the same person. \u00a0Let’s call him Art Vandalay. \u00a0Art Vandalay owns 51% of both ABC and XYZ. \u00a0Mr. Vandalay started ABC when he was a young entrepreneur, and then purchased XYZ later in his illustrious career. \u00a0When he applied for workers comp insurance for XYZ, it was discovered that he also owns ABC, and the WCIRB assigned XYZ the same bureau number as ABC. \u00a0The two companies are now tied together for workers comp purposes by the Common Majority Ownership rule. \u00a0They will now have the same Experience Modification, and no insurance company will insure XYZ unless it also insures ABC. \u00a0Having the same Experience Modification can be a good thing or a bad thing. \u00a0If one of the companies has a lot of claims, the Experience Modification will be high – for both companies (increased expenses). \u00a0If one of the companies has little to no claims, the Experience Modification will be low – for both companies (cost savings!).<\/p>\n
This blog is for the small business owner that has little familiarity with Workers Comp, and finds himself angry and confused when he finds this rule applying to him without any explanation.<\/p>\n
This blog is to help keep the blood pressure of the emerging business owner down by showing him the rules of the game before he makes a bad decision.<\/p>\n
This blog is to help people who are thinking of splitting a single business into smaller businesses in order to get rid of\u00a0a high Experience Modification. \u00a0Your efforts are futile. \u00a0It can’t be done! \u00a0Common Majority Ownership will rat you out.<\/p>\n
So now you know. \u00a0Enjoy navigating the business waters. \u00a0You’re welcome.<\/p>\n