Definition of a close company

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Definition of a close company
Qualifying conditions
Participator
Directors
Control
Associates
Exceptions
Information regarding shareholders

There are several sets of provisions in the Taxes Acts which relate to ‘close’ companies, most of which are anti-avoidance measures aiming to catch transactions between those companies affected and their owners, where there may otherwise be a tax advantage. Broadly speaking, most owner-managed or private family businesses will be close, but in many cases, close company status may not be immediately apparent. The Flowchart ― close company status is a useful aide memoir to determine close company status.

CTA 2010, s 439

For guidance on the effects of being a close company, see the Implications of close company status guidance note.

Qualifying conditions

A close company is a company which is resident in the UK where it meets either Condition A or Condition B and does not fall within one of the specific exceptions (exceptions are discussed below).

Condition A

Condition A requires that the company is under the control of either:

•five or fewer participators, or
•any number of participators who are directors

CTA 2010, s 439(2); Simon’s Taxes D3.102 (subscription sensitive)

There are links to further guidance on the definitions of ‘participator’, ‘director’ and ‘control’ below.

See Example 1.

Condition B

Condition B requires that either of the following together possess, or are entitled to acquire, rights to receive the majority of assets available for distribution to the participators on winding up: