Close company Definition

GLOSSARY

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What does Close company mean?

Subject to some exceptions, a close company is a company (1) which is controlled by five or fewer participators, or (2) which is controlled by its directors, or (3) more than half of the assets of which would be distributed to five or fewer participators, or to participators who are directors, in the event of its winding up.

The main exceptions are that a company is not close if it is (1) based outside the UK, or (2) controlled by a non-UK resident company that would not be classified as close if it were based in the UK.

Quoted companies may not be counted as close if 35% or more of the voting power is publicly held, and if the shares that convey those votes have been traded on a stock exchange. The exception to the latter of these circumstances is if the participants' total vote exceeds 85%.

The taxation of a close company differs from that of other companies in three main ways: (1) a wider view is taken as to what amounts to

View the related checklists about Close company

EMI share options—checklist to determine whether a company and its employees qualify

EMI share options—checklist to determine whether a company and its employees qualify Enterprise management incentives (EMI) options are tax-advantaged share options which a qualifying company with fewer than 250 employees can grant on a discretionary basis over shares worth up to £250,000 per individual and £3,000,000 in aggregate (in both cases the shares are valued as of the date of grant and ignoring any restrictions) and are intended for use primarily by small and growing companies. The legislation relating to EMI options sets out numerous requirements that must be met, including in relation to: • the company granting the options • the individuals being granted the options, and • the terms of the options themselves This Checklist focuses on the requirements that must be satisfied in order to gain the income tax relief provided for in Part 7, Chapter 9 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). This Checklist merely provides a guide to the legislative requirements relating to a company and its employees that must...

Checklist for establishing an EBT

Checklist for establishing an EBT FORTHCOMING CHANGE: On 11 March 2024, HM Treasury launched a consultation on the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, SI 2017/692, which place requirements onto a range of businesses to identify and prevent money laundering and terrorist financing. The consultation includes reforming registration requirements for the Trust Registration Service (TRS)—with a possible de minimis exemption from registration on the TRS if certain tests are met. Responses to the consultation were sought by 9 June 2024 and the government’s response is awaited. See Open consultation: Improving the effectiveness of the Money Laundering Regulations and Share Incentives weekly highlights—14 March 2024—Employee Benefit Trusts. This is a checklist of the main items that must be considered before setting up an employee benefit trust (EBT) and immediately following the establishment of the EBT. It assumes that the company has already made the decision to set up the EBT, having taken appropriate advice on this. For further...

Tax consequences for close companies

Summary of tax considerationsThe concept of a close company is intended to capture those companies that are closely controlled (ie by the owners and managers) and therefore could be used to manipulate the tax position of its activities and its investors.If a company is a close company, its own tax position may be affected by:•the tax charge made on loans advanced and other benefits made available to participators, and•the extended meaning of distributionsThese tax consequences are further explained in this Practice Note.The tax position of a close company's participators may also be affected by:•the extended meaning of distributions•the income tax change that arises where a close company has been chargeable to tax under section 455 of the Corporation Tax Act 2010 (CTA 2010) and releases or writes off the whole or part of the debt•the attribution of a transfer of an asset by a close company at an undervalue•the attribution of payments to and from the company where the company has been interposed between the beneficiaries and trustees of a...

Loan relationships—late-paid interest

The loan relationships rules in Part 5 of the Corporation Tax Act 2009 (CTA 2009) contain a set of anti-avoidance provisions which relate to the late payment of interest. Where these provisions (the late-paid interest rules) apply, they can defer the time at which a corporation tax deduction is available to a debtor company in respect of interest on a loan relationship.It is important to note upfront that Finance Act 2015 (FA 2015) significantly narrowed the scope of the late-paid interest rules with the result that they now have very limited application and have largely been superseded by the loan relationships regime-wide anti-avoidance rule (RAAR) that was introduced by Finance (No 2) Act 2015 (F(No 2)A 2015). The late-paid interest rules do however retain relevance in relation to certain loans made by participators to close companies, and to loans made by trustees of occupational pension schemes to debtors which employ (or are in some way connected with an employer of) persons to whom the scheme relates.This Practice Note addresses:•the mischief that...

Discover our 169 Practice Notes on Close company

Share purchase agreement—pro-buyer—corporate seller—conditional—long form

Share purchase agreement—pro-buyer—corporate seller—conditional—long form This Agreement is made on [insert day and month] 20[insert year] Parties 1 [Insert name of selling corporate entity] incorporated in [England and Wales OR [insert country of incorporation] OR with registered number [insert company number] whose registered office is at [insert address] (the Seller); 2 [Insert name of purchasing corporate entity] incorporated in England and Wales OR [insert country of incorporation] OR with registered number [insert company number] whose registered office is at [insert address] (the Buyer), and 3 [Insert name of guarantor entity] incorporated in England and Wales OR [insert country of incorporation]] with registered number [insert company number] whose registered office is at [insert address] (the Guarantor) [(each of the Seller, the Buyer and the Guarantor being a Party and together the Seller, the Buyer and the Guarantor are the Parties).] Background (A) The Company (as defined below) is a private company limited by shares and is incorporated in [England and...

Share purchase agreement—pro-buyer—individual sellers—conditional—long form

Share purchase agreement—pro-buyer—individual sellers—conditional—long form This Agreement is made on [insert day and month] 20[insert year] Parties 1 The several persons whose names and addresses are set out in Schedule 1 (together the Sellers), and 2 [Insert name of purchasing corporate entity] incorporated in [England and Wales OR [Insert country of incorporation]] with registered number [insert company number] whose registered office is at [insert address] (the Buyer), [(each of the Sellers and the Buyer being a Party and together the Sellers and the Buyer are the Parties).] Background (A) The Company (as defined below) is a private company limited by shares and is incorporated in[ England and Wales OR [insert country of incorporation]]. Details of the Company are set out in Schedule 2, Part A. (B) The Sellers are the legal and beneficial owners of the Sale Shares (as defined below), being in aggregate the entire allotted and issued share capital of the Company. (C) The Sellers have agreed to sell and the...

Dive into our 19 Precedents related to Close company

If a trust’s sole asset is shares in a private company, how can expenses of the trust be paid without the trustees receiving a dividend, or borrowing funds which at some point may need to be written off?

If a trust’s sole asset is shares in a private company, how can expenses of the trust be paid without the trustees receiving a dividend, or borrowing funds which at some point may need to be written off? This Q&A considers a UK resident trust. See Practice Note: Trust expenses, which includes a discussion on income expenses and capital expenses. Although trust manageable expenses (TMEs) are not tax deductible expenses in the same way as trading expenses, those that are deductible against trust income can reduce income tax liabilities as follows: • the amount of income on which an interest in possession beneficiary is assessed is reduced by TMEs. The TMEs do not reduce the trust tax liability but they do reduce the beneficiary’s liability • income used to pay for TMEs in discretionary and accumulation trusts is not subject to the higher trust rate of tax It is therefore important, for tax purposes as well as trust administration purposes, to distinguish between TMEs applicable to...

Is there any guidance as to the appropriateness of defining ‘Control’ as either (a) in accordance with section 1124 of the Corporation Tax Act 2010, or as (b) the beneficial ownership of more than 50% of the issued share capital of a company or the legal power to direct or cause the direction of the general management of the company?

Is there any guidance as to the appropriateness of defining ‘Control’ as either (a) in accordance with section 1124 of the Corporation Tax Act 2010, or as (b) the beneficial ownership of more than 50% of the issued share capital of a company or the legal power to direct or cause the direction of the general management of the company? The Drafting Notes to clause: Control definition state: ‘…two options are offered in the suggested definition of the term “control”. The first option is that this term is defined by reference to section 1124 of the Corporation Tax Act 2010; this is a comprehensive, but complex definition. The second option may be more appropriate for straightforward transactions.’ Often in commercial contracts, the term ‘change of control’ is construed by reference to the definition of ‘control’. Therefore, how complex the structure of the parties to the contract, the type of transaction being entered into, the intentions of the parties, the bargaining power of the parties, and the clause within...

See the 25 Q&As about Close company

Corporate weekly highlights—31 October 2024

This week's edition of Corporate weekly highlights includes detailed analysis and expert commentary on the impact of the Autumn Budget 2024, including measures concerning CGT and inheritance tax that impact the sale of shares, investment in AIM companies and carried interest for private equity managers. Other items include news of the Institute of Directors launching its Code of Conduct for Directors and an analysis of updated enforcement policy guidance issued by Companies House, together with commentary on the approach it appears to be taking in practice towards ensuring compliance.

Autumn Budget 2024—key Corporate announcements

In the Autumn Budget 2024, on 30 October 2024, the Chancellor of the Exchequer, the Rt Hon Rachel Reeves MP, announced a series of measures aimed at promoting growth and investment in UK businesses. A series of tax rises, aimed at raising £40bn, include increases in the Capital Gains Tax (CGT) rates for selling shares, a reduction in the Inheritance Tax (IHT) relief available on shares in AIM companies and an increase in the rate of CGT on carried interest payments for private equity investors. Alongside the Autumn Budget, HMRC have published two policies papers on corporate tax anti-avoidance measures for close company shareholders, and capital gains for limited liability partnership liquidations. Silvana Van der Velde, Director of the Corporate Tax Team at Burges Salmon, comments on these measures.

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