Form 5305-SEP says you can't use it if the employer is part of a controlled group. Not that you can't have a SEP, just that you can't use the IRS form.

An investment company's adoption agreement has the definition of employer pasted below. Based on that language, it appears that if companies A and B are part of a controlled group, then either A or B could adopt the SEP and both can (must) participate in it. i.e if A adopts it, B doesn't have to do anything else to adopt the SEP other than make the contribution. All service with either company will count.

So...if the owner started company A in 2002 (with no other employess), and then started company B in 2004 (with employees) he can adopt a SEP for company A with 3 year eligibility this year, and contribute from A and B for himself only, of course at the same percentage and subject to 415 limits.

Any arguments against?

Employer. Any corporation, partnership or proprietorship that
adopts this SEP Plan, including any entity that succeeds the Employer
and adopts this SEP Plan. For purposes of this SEP Plan, Employer shall
also mean the Employer that adopts this SEP Plan and all members of a
controlled group of corporations (as defined in Code §414(b)), all commonly
controlled trades or businesses (as defined in Code §414©) and
all affiliated service groups (as defined in Code §414(m)) of which the
adopting Employer is a part. Employer shall also include any other entity
required to be aggregated with the Employer pursuant to Code §414(o).

I don't quite agree with your interpretation of the 5305-SEP form language. What the 5305-SEP form says is that it may not be used by a CG/ASG UNLESS all eligible employees of all members participate in the SEP.

I agree that you can use 3 year eligibility to exclude those employees who do not have 3 years of service.

Thanks. I re-read it and agree with you.