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HMRC internal manual

Company Taxation Manual

Close companies: tests: examples

Examples illustrating some examples of the points in CTM60100 onwards are given below. The examples refer to companies having shares that are not dealt in or quoted on a stock exchange.

Example 1

Company X has 1,000 issued shares of £1 held as below.

Trustees of A’s settlement 449
Mrs A (settlor) 60
Ten other shareholders 491
Total issued ordinary shares * * *



The ten shareholders are not associated with each other or with A or Mrs A and no one of them holds more than 50 shares.

The trustees of A’s settlement are associates of Mrs A by virtue of CTA2010/S448 (1) (b) and (c) (formerly ICTA88/S417 (3)(b)), ((b) of CTM60150) and their rights and powers may be attributed to Mrs A who therefore controls the company.

Company X is therefore a close company.

Example 2

The £1 issued shares in a trading company are owned as follows.

Ordinary shares  
A 4
B (cousin of A) 4
12 individuals equally, none of whom is a nominee associate, etc, of any other shareholder 4,992
Total issued ordinary shares 5,000
5% preference shares  
A (see above) 5,000
Total nominal and issued capital 10,000

There are no loan creditors ranking as participators or members.

Control by reference to possession of the greater part of the issued share capital (CTA2010/S450 (3) (formerly ICTA88/S416 (2)(a))).

The company is a close company because A possesses more than half the issued capital.

Example 3

The issued ordinary shares in a trading company carry one vote each but the ‘A’ ordinary shares do not confer voting rights. The shareholders are as below.

  Ordinary ‘A’ ordinary
A 280  
Wife of A 100  
B (brother of A) 10  
Trustees of A’s settlement 40  
Company X (controlled by A) 80  

  Mrs C (daughter of B) 20  
  10 other equal holdings 470 500
  Total issued shares * * *  


  * * *



The shares carry equal rights to dividend. A’s wife has made a loan of £20,000 to the company at 5% interest. There is no share premium account or other comparable account.

Control by voting rights (CTA2010/S450 (3) (formerly ICTA88/S416 (2)(a))..

The associates of A are:

his wife and his brother, (ICTA88/S417 (3)(a) and (4), ((a) of CTM60150), and

the trustees of A’s settlement, CTA2010/S448 (1) (b) and (c) (formerly ICTA88/S417 (3)(b)), ((b) of CTM60150).

The rights and powers attributable to A are:

  1. the rights and powers of his associates (CTA2010/S451 (4) to (6) (formerly ICTA88/S416 (6)) CTM60140, and
  2. the rights and powers of Company X (CTA2010/S451 (4) to (6)).

As a total of 510 votes are thus possessed by A or attributable to him, the company is a close company controlled by one person.

Alternatively control by holding the greater part of the issued share capital, (CTA2010/S450 (3)), - any eight of the other equal holdings will control the company by holding the greater part of the issued share capital.

Example 4

The authorised and issued share capital of Company X is £1,000 in the form of 1,000 ordinary shares of £1 each, held as below.

A 200
B 100
C 50
D 50
E 40
Company Y 99
Other shareholders 461
Total issued ordinary shares 1000

A, B and C are directors.

The issued capital of Company Y, is £100 in the form of 100 ordinary shares of £1 each, held by:

F (son of E) 60
G 40
Total issued shares 100

The shareholders in Company X, other than Company Y, are all individuals and none are related or otherwise associated. No ‘other shareholder’ holds more than 50 shares.

Control - the rights in the shares held by Company Y in Company X may be attributed to F who controls that company (CTA2010/S451 (4) to (6) (formerly ICTA88/S416 (6)) - see (c) of CTM60140).

F is an associate of E but the rights attributed to F cannot be further attributed to E (CTA2010/S451 (4) to (6)).

No group of five participators or fewer can control Company X, nor do the director/participators control, and nor would the winding up test be of assistance here.

Company X is not a close company.

Example 5

The facts are the same as in Example 4 except that F is the holder of one share in Company X.

Control rights can be attributed to F as below.

Shares held in own right 1
Shares held by E (an associate) 40
Shares held by Company Y (controlled by F) 99

Thus A, B, C, D and F hold (or have attributed to them) the rights in 540 shares and control the company.

Company X is a close company.

Example 6

Company X has authorised capital of £5,000 in £1 ordinary shares of which £3,000 is issued as below.

A 150
B 150
C 150
D 250
E 250
F 250
20 other shareholders (no one holder having over 100 shares) 1800
Total issued ordinary shares 3000

The 20 other shareholders are individuals and none of the shareholders is an associate of any other. A, B and C are the directors. They each enter into a service agreement providing that they are to remain directors for five years from 1 January 1992, and that on 31 December 1996, they shall each have the right to purchase 500 £1 shares in the company at par.

Control - A, B and C each exercises or is entitled to acquire rights in 650 shares (CTA2010/S450 (3) (formerly ICTA88/S416 (2)(a)) and CTA2010/S451 (2) (formerly ICTA88/S416 (4)) - CTM60220).

Thus A, B, C, D and E (or A, B, C, D and F, or A, B, C, E and F) together constitute a group which is ‘able to exercise or is entitled to acquire, control’ of the company (with 2,450 shares out of 4,500, i.e. the 3,000 issued plus the 1,500 to be issued to the directors).

The company is a close company from 1 January 1992.

Example 7

The authorised and issued capital of an investment company is £33,000and is owned equally by eleven individuals who are not associated. The loan creditors are:

A (director and shareholder) £ 35,000
B (not a shareholder) £ 13,500

Neither A nor B is a bank. B is not an associate of a director.

In a winding up, the value of the net assets distributable among members, including loan creditors, would be £120,000 as below.

Deposits with local authorities   £ 30,000
Market value of quoted investments(representing the remainder of the assets)   £110,000
Deduct sundry creditors    
Management expenses £ 300  
Bank overdraft £ 19,700 £ 20,000
Value of net assets   £120,000

Control - the company cannot be shown to be controlled by five or fewer participators under CTA2010/S450 (3) (a) to (c)(formerly ICTA88/S416 (2)(a)or (b)) - CTM60220. In a liquidation, the assets would, however, be distributed as below.

A as loan creditor £ 35,000
B loan creditor £ 13,500
Shareholders (£6,500 each) £ 71,500
Value of net assets £120,000

More than half of this sum would be received by three persons, that is:

A (£35,000 plus £6,500) £ 41,500
B £ 13,500
Any shareholder other than A £ 6,500
Distribution to three persons £ 61,500

The company is therefore a close company by reference to CTA2010/S450 (3) (d) (formerly ICTA88/S416 (2)(c)) (see CTM60230) because the inclusion of loan creditors as participators shows that it is controlled by three participators.

Example 8

The issued ordinary capital of a trading company (other issued capital having no voting rights) is held as below.

Company A (not a close company) 280
Company B (a close company) 270
Company C (not a close company) 230
D (director) 40
E (director) 30
F (an individual) 30
20 others 120
Total issued ordinary shares 1,000

Control -the requirements of CTA2010/S444 (2) (a) (formerly ICTA88/S414 (5)(a)(i)) (see (a) of CTM60290) are regarded as satisfied because, upon one combination of shareholdings, control is in the hands of Company A and Company C, even though by other combinations a controlling group which includes only one of those companies may be established. The company is not a close company if the requirements of CTA2010/S444 (2) (b) (formerly ICTA88/S414 (5)(a)(ii)) are also satisfied, that is, if none of the control tests enables control by five or fewer participators to be established without including a non-close company among those participators, and the company is not controlled by its directors and cannot be shown to be close on the or winding up test (CTM60320) without including a non-close company among the five or fewer participators (see, however, Example 9 below).

Example 9

The ordinary shares are held as in Example 8. G, an individual, holds redeemable loan stock and would receive in a winding-up more than half of the assets available for distribution among the participators.

Control - as G is in control of the company by reference to CTA2010/S450 (3) (d) (formerly ICTA88/S416 (2)(c)) (see CTM60230), the requirements of CTA2010/S444 (3) (formerly ICTA88/S414 (5)(b)) are not met and, irrespective of the control by open companies, the company is a close company.