My understanding is that this would reclassify the 10% management fee
from passive rental income to active property management income. Is
If so, once it's active income I should be able to use
it for solo 401k contributions.
I've been hesitant to answer because I don't know a great deal about Solo 401k requirements and I haven't found concrete evidence to support my feeling that the IRS would view the 2nd company as a sham.
You definitely need earned income rather than passive to contribute to a Solo 401k, so the idea that you'd have to convert some of your passive rental income holds up. Normally you wouldn't want to convert passive to active because that triggers self-employment tax. Solo 401k contributions do not decrease self-employment tax.
In other schemes where the 2nd business serves no purpose other than some sort of tax advantage the IRS can and does challenge the setup. This feels very much like that sort of situation to me, but I see people claiming it is proper and haven't heard of anyone being challenged on it (that doesn't mean they're not).
If the management company was an S-Corp you might be able to avoid some self-employment tax, but you'd definitely be paying some, which you aren't currently paying on the passive rental income. Since you aren't a real estate professional the S-Corp shouldn't hold your properties, you'd run afoul of passive income restrictions.
This is complex enough that I suggest consulting a professional about your specific circumstances, and perhaps even getting a second opinion after that. Focus on net benefit after setup/on-going costs.