Olms interpretative Manual

SUBSIDIARYORGANIZATION

215.003DEFINITION

“A subsidiary organization,” within the meaning of these instructions, is any separateorganization in which the ownership is wholly vested in the labor organization or its officers orits membership, which is governed or controlled by the officer, employee, or members of thelabororganization,andwhichiswhollyfinanced by the labor organization.

SeeInstructionsforFormLM-2,PartX.(TechnicalRevisions:Dec.2016)
215.005

See Instructions for Form LM-2, Part X.(TechnicalRevisions:Dec.2016)

215.100CREATIONBYINTERNATIONALLOAN
Where an international labor organization, as part of an organizational campaign, causes anonprofit, nonstock legal entity to be created in order to purchase a meeting hall, such an entitywill be considered a “subsidiary” of the international where (1) all the officers of the newlycreated organization are identical with the officers of the international and (2) the organization iswholly financed by the international’s treasury even though the funds expended are reflected as a“loan” to the newly created corporation.The LM-2 for the international should reflect thetransactions involving the “subsidiary” organization in accordance with Section X on page 4 ofthe LM-2 instructions, “Labor Organizations with Subsidiary Organizations”In no case would itbecorrect toreport the financialinterestofthis entity solelyasa “loan.”
215.200 HOLDING OF STOCK BY DISTRICT COUNCIL AND MEMBER LOCALSWhereaDistrictCouncilholdsaportionoftheequityownership(i.e.,commonstock)ofa
corporation which owns the building which is used to house the District Council, and where thebalance of the outstanding common stock is held by local labor organizations which are membersof the Council, the Building Corporation in question comes within the definition of a “subsidiaryorganization” set forth in Part X of the instructions for the Form LM-2: Provided,That the initialfinancing came from the Council and/or its members: And provided further,That the corporationisgovernedorcontrolledbytheCounciland/oritsmembers.

NOTE:Inacase-involvinga“subsidiaryorganization”whichiswhollyowned,controlledand

financed by an intermediate labor organization, such as a District Council, andits memberorganizations, (e.g., the stock is held by the intermediate organization and the member locals),the obligation to report the entire net assets, financial condition, and operations of such“subsidiary organization”nonetheless remains with the intermediate labor organization (theDistrictCouncil).

AssumingthattheDistrictCouncilinthe exampleaboveelectstoreporttheactivitiesofthesubsidiary,theBuildingCorporation,inaseparatereportassetforthinMethod(2)inofPart X of the instructions for Form LM-2, then in the District Council’s own Form LM-2 itshould include in “Item 69 -- Additional Information” a descriptive itemization of thecomposition of the remaining ownership by the various participating locals of that DistrictCouncil,inordertofulfilltherequirements forfulldisclosureofthesubsidiaryownership.

When a “subsidiary organization” is owned, controlled and financed under the abovecircumstances, reporting required financial information on it by use of Method (1) as set forth inPart X of the instructions for the LM-2 (consolidated method) is not practical due to thedistortion of the financial condition and operations of the reporting labor organization (theDistrictCouncil)thatwouldresult.Consequently,useofMethod(1)shouldbediscouraged.

(Revised:Dec.2016)

215.300HOLDINGOFSTOCKBYMEMBERLOCALS

A Development Corporation was formed to hold title to a building in which various locals ofa Joint Council maintain their offices.All of the stock in the corporation is held by theconstituentlocalsoftheJointCouncil.TheJointCouncilcontrolsandfinancesthecorporation.

Under these conditions the Development Corporation may be considered a “subsidiaryorganization” of the Joint Council.The term “membership” in the subsidiary organizationdefinition (as distinguished from the statutory definition of member in section 3(o) of the Act) isapplicabletotheparticipatinglocalswhichconstitutethe membershipof theJointCouncil.
Since all of the stock in the Development Corporation is held by these locals, ownership is thuswhollyvested in the membershipofthe JointCouncil.

215.310HOLDINGOFSTOCKBYINTERNATIONALOFFICERS

A labor organization organized a corporation, the stock of which was held in trust bysucceeding officers of the International.The funds representing the capital stock of thecorporation were applied to the purchase of a vacation resort held in the name of the corporation.The remainder of the purchase price of the resort was provided by mortgage loans made byvarious affiliates of the International.

The creation of the corporation was wholly financed by the International, and control of theoutstanding stock has always been vested in its officers.The equity capital for the purchase ofthe resort was provided by the labor organization, notwithstanding secured loans held byaffiliates against the property amounting to a major portion of the purchase price.For thesereasons, the corporation and its property are to be considered as wholly owned, controlled andfinanced by the International and should be reported by it as a “subsidiary organization”accordingtothe instructions accompanying the LM-2.

215.400“HOLDINGCORPORATION”OFSUBSIDIARY

Whenalocallabor organizationcreatestwoseparate corporations,oneof whichisaholding

company for the other which owns the building where the union meets, and where the officers ofthe local are the officers of both corporations and the ownership of both corporations is vested inmembership of the local, the Department will consider both entities “subsidiary organizations” asthat term is defined in the Instructions for the LM-2 (Section X) since ownership and controlactuallyresidein the local.

(TechnicalRevisions:Dec. 2016)

215.500BUILDINGCORPORATION

Where a local union creates a nonprofit building corporation which is financed, under termspermissible under the Employee Retirement Income Security Act (ERISA), by a mortgage loanobtained from a jointly administered Welfare Fund of the local, and that corporation is whollycontrolled by the officers of the union and is indirectly owned by the union through possession of100% of the stock of the corporation, the corporation is a “subsidiary organization” within themeaningofthat termasit isdefinedin FormLM-2Instructions PartXOrganizationsX.

Since the corporation is wholly owned and controlled by the local, the presence of amortgage would not constitute outside financing so as to take the corporation outside of thescopeofthedefinitionofasubsidiaryorganization.

(Technical Revisions: Dec. 2016)215.600INTERVENTIONOFTRUSTEES

Where a labor organization creates a trust, the trustees of which are representatives of thelabor organization and where the purpose of the trust is to hold all the outstanding stock in abuilding corporation for and on behalf of the Labor organization, and the primary purpose of thecorporation is to house the labor organization, the building corporation is a “subsidiaryorganization”withinthemeaningofthattermasdefinedin FormLM-2 InstructionsPartX.

In short, the intervention of trustees holding the labor organization’s ownership interest in abuilding corporation does not change the status of the building corporation as a “subsidiaryorganization”ifit otherwisecomes within theterms ofthe definition.

(TechnicalRevisions:Dec.2016)

215.700RECEIPTOFINCOMEBYSUBSIDIARY

A separate organization wholly owned by the union, or its officers, or its members, would beconsidered “wholly financed” by the union despite the receipt of some operating income fromrent, sales, etc., if the funds used to establish it as a going concern originally were either unionfunds or were obtained by the union through credit arrangements with lending institutions.Evenif the subsidiary subsequently becomes fully self-supporting through operating revenue, it willnevertheless be considered “wholly financed” by the union if a source of that revenue is capitalfurnished by the union.

(Revised:Dec.2016)