CTM60250 - Close companies: tests: control - in multiple

More than one person or one group of persons may ‘control’ a company. For example, one person may have the greater part of the voting power, while two people hold the greater part of the issued share capital and a group of three people are entitled to the greater part of the assets in a winding up. All three combinations of people can be taken to have control of the company at the same time.

If say three persons, A, B and C, each hold one third of the shares in a company, and they are not connected in any way which would allow the rights and powers of one to be attributed to another, then control is held by A and B, or B and C, or A and C but not A, B and C together.

This is because in determining whether companies are ‘associated companies’ the focus is on ‘minimum’ controlling combinations, disregarding those containing superfluous members. Thus, a company controlled by unconnected persons A, B and C, but not by any one or two of them alone, is not regarded as associated with any company controlled by one of them alone (as in the first paragraph above) or by any two of them (as in the second paragraph). See CTM03730 for an example.

However deciding on the ‘minimum’ controlling combination for any of the tests set out at CTA10/S450 (3) (a) to (d) does not mean establishing the smallest controlling combination of each company when determining whether companies are associated companies.

In his High Court judgment in R v CIR ex parte Newfields Developments Ltd (2001) 73TC532 at 541B Moses J said that [what is now] section 450 had to be exercised for the statutory purposes for which it was conferred:

‘In the context of Section 13, that purpose is to ascertain whether, in the instant case, two companies are under the control of the same person pursuant to Section 13(4). That is the statutory question. If it is possible to answer that in the affirmative, by exercising the power of attribution, in my judgment, that power must be exercised. Conversely, if that question, namely, are the two companies under the control of the same person, can only be answered in the affirmative by refraining from the exercise of the power, then the power should not be exercised ‘.

So in the first paragraph above, it may be possible to determine that two companies are associated because the three people who together have an entitlement to the greater part of the assets in a winding up also together hold the greater part of the voting power in another company. In that case this group would control the company and not the single or two person combinations. The identical controlling combination does not need to be established by the same test in each company.