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HMRC internal manual

Company Taxation Manual

Close companies: tests: control - summary

Normally, it will be possible for you to determine that a company is a close company by reference to:

  1. the holders of the issued share capital (CTM60220), or
  2. the holders of the voting powers attaching to the issued share capital (CTM60220)

subject to the company not being within any of the exceptions dealt with in CTM60260 to CTM60310 (the voting rights attaching to the shares are irrelevant to the test referred to in (a)). Where, however, these tests fail to establish that the company is a close company, you will have to consider other tests of control. In applying these other tests, the following pointers may help.

  • In considering whether a person is ‘entitled to acquire’ or ‘to secure’, there must be in existence some contractual right or other arrangement giving him or her that entitlement (see, in this connection, CTM60120).
  • The test in (c) of CTM60220 depends on the dividend rights of the issued capital and will be mainly of interest where shares with no voting rights carry the right to a high dividend.
  • The test in CTM60230 will normally be of interest only where loan creditors are participators (see CTM60130) or there exist special rights to participate in the assets available for distribution in a winding-up or in any other circumstances for example, on redemption of redeemable share capital.

In considering any of the control tests, it is essential to have available an up-to-date copy of the company’s Memorandum and Articles of Association and copies of any relevant trust deeds, etc.