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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Schedule 4 Company Share Option Plan (CSOP): Shares to be used: Control by another company

The scheme shares must not be in an unlisted company which is under the control of another company.

  • ‘Control’ for this purpose has the meaning given by Section 719 ITEPA (see ETASSUM43140).
  • ‘Company’ is defined in Section 992 ITA 2007 as any body corporate or unincorporated association but does not include a partnership, a local authority or a local authority association.

To determine whether an unlisted company (whose shares are to be scheme shares) is under the control of another company, it is necessary to consider the share holdings, voting rights, and other powers of the companies in the share holding ladder above it. 

A company may be under the control of more than one other company, for example it may have an immediate parent company and an ultimate parent company. It is not sufficient for the unlisted subsidiary to be under the control of an unlisted company which is owned by a consortium of listed companies, none of which has control.

If a company is controlled by a corporate trustee it will be under the control of another company. The fact that the trust company may be acting in a fiduciary capacity does not mean that it will not have control. The legislation at paragraph 17(1)(ba) does however allow for scheme shares to be shares in a company which is subject to an employee-ownership trust as defined by paragraph 27(4) to (6) of Schedule 2 ITEPA.

If a company is controlled by a limited partnership it may be necessary to look through the limited partnership to the corporate partners to ensure that none of them has the power, on its own, to control the company whose shares are to be scheme shares.

Shares in an unlisted subsidiary of a nationalised industry cannot be used in a Schedule 4 CSOP scheme.

Shares in an unlisted subsidiary of a mutual life company cannot be used in a Schedule 4 CSOP scheme. Mutual Life companies have no share capital.