A change in ownership is material only if the owner or owners prior to the change in ownership own less than a one-half interest after the change in ownership. See Section IV, Rule 1a of the California Workers' Compensation Experience Rating Plan - 1995.
Material Change in Ownership Example
Oscar's Oysters Incorporated is owned by Oscar (75%) and Lily (25%). Oscar sells his 75% to Howard. Since the prior owners did not continue to own 50% or more of the entity after the sale, the change in ownership is considered material.
In the event of a material change in ownership, the seller's experience is carried forward to the buyer unless it is demonstrated that a material change in employees or a material change in operations occurred within 90 days of the ownership change. Such a material change in employees or operations is referred to as a "change in status." (Learn more about When an Entire Risk Is Sold or When Less than the Entire Risk is Sold.)
Once incurred, a company's payroll and loss experience stays with it throughout the applicable experience period regardless of whether or not the company changes its employees or operations. In other words, a company cannot shed its experience by selling its business and starting a new one, nor can it shed its experience by selling a portion of the business.
Seller's Side Example
Stanley sells his restaurant and buys a quick print shop. The payroll and loss experience from the restaurant - prior to the date of sale - continues to be used in Stanley's experience modification, which is now applicable to his quick print shop.
In the event of a material change in ownership, Section IV, Rule 1 of the California Workers' Compensation Experience Rating Plan - 1995 describes the circumstances in which the seller's experience is — and is not — carried forward for use in the experience rating of the buyer. The rules regarding the application of a risk's payroll and loss experience to the buyer are based on the following rationale:
The California Workers' Compensation Experience Rating Plan - 1995 has been structured to ensure that when an entity undergoes a material change in ownership, the experience of a prior owner shall be carried forward to the new owner unless there is a compelling reason to do otherwise. Compelling reasons are limited to clearly defined material (majority) changes in employees or operations.
When all or a portion of a risk undergoes a material change in ownership, the seller's experience applies to the buyer unless there is a change in status. A change in status occurs if, in comparing the 90 days subsequent and prior to the change in ownership, there is either a material change in employees or a material change in operations. See Section IV, Rule 1b of the California Workers' Compensation Experience Rating Plan - 1995.
Insurers, agents and brokers can log into WCIRB Connect® and use the Ownership Information Submission tool to notify the WCIRB of a change in ownership. The WCIRB no longer accepts ownership information submitted using WCIRB Form 601, Notification of Change in Ownership and/or Combinability of Entities Form. Learn more about the Ownership Information Submission tool on WCIRB Connect.
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