Definition of a close company

By Tolley
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The following Owner-Managed Businesses 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
  • 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:

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

or would do so ignoring any rights held by any person as a loan creditor.

CTA 2010, s 439(3); Simon’s

More on Close companies: