CTM60420 - Close companies: tests: examples
Examples illustrating some examples of the points in CTM60100 onwards are given below. »Ê¹ÚÌåÓýapp 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.
| Shareholder | Number of shares |
|---|---|
| Trustees of A’s settlement | 449 |
| Mrs A (settlor) | 60 |
| Ten other shareholders | 491 |
| Total issued ordinary shares | 1,000 |
»Ê¹ÚÌåÓýapp ten shareholders are not associated with each other or with A or Mrs A and no one of them holds more than 50 shares.
»Ê¹ÚÌåÓýapp 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
»Ê¹ÚÌåÓýapp £1 issued shares in a trading company are owned as follows.
| Ordinary shares | - |
|---|---|
| Directors | Ìý |
| A | 4 |
| B (cousin of A) | 4 |
| Others | Ìý |
| 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 | Ìý |
| A (see above) | 5,000 |
| Total nominal and issued capital | 10,000 |
»Ê¹ÚÌåÓýappre 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))).
»Ê¹ÚÌåÓýapp company is a close company because A possesses more than half the issued capital.
Example 3
»Ê¹ÚÌåÓýapp issued ordinary shares in a trading company carry one vote each but the ‘Aâ€� ordinary shares do not confer voting rights. »Ê¹ÚÌåÓýapp shareholders are as below.
| Shareholder | Ordinary | ‘A� ordinary |
|---|---|---|
| A | 280 | Ìý |
| Wife of A | 100 | Ìý |
| B (brother of A) | 10 | Ìý |
| Trustees of A’s settlement | 40 | Ìý |
| Company X (controlled by A) | 80 | Ìý |
| Total shares possessed by A or attributable to him | 510 | Ìý |
| Mrs C (daughter of B) | 20 | Ìý |
| 10 other equal holdings | 470 | 500 |
| Total issued shares | 1,000 | 500 |
»Ê¹ÚÌåÓýapp shares carry equal rights to dividend. A’s wife has made a loan of £20,000 to the company at 5% interest. »Ê¹ÚÌåÓýappre is no share premium account or other comparable account.
Control by voting rights (CTA2010/S450 (3) (formerly ICTA88/S416 (2)(a))..
»Ê¹ÚÌåÓýapp 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).
»Ê¹ÚÌåÓýapp rights and powers attributable to A are:
- the rights and powers of his associates (CTA2010/S451 (4) to (6) (formerly ICTA88/S416 (6)) CTM60140, and
- 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
»Ê¹ÚÌåÓýapp 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.
| Shareholder | Number of shares |
|---|---|
| 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.
»Ê¹ÚÌåÓýapp issued capital of Company Y, is £100 in the form of 100 ordinary shares of £1 each, held by:
| Shareholder | Number of shares |
|---|---|
| F (son of E) | 60 |
| G | 40 |
| Total issued shares | 100 |
»Ê¹ÚÌåÓýapp shareholders in Company X, other than Company Y, are all individuals and none are related or otherwise associated. No ‘other shareholderâ€� 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
»Ê¹ÚÌåÓýapp 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.
| Shareholdings | Number of Shares |
|---|---|
| Shares held in own right | 1 |
| Shares held by E (an associate) | 40 |
| Shares held by Company Y (controlled by F) | 99 |
| Total | 140 |
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.
| Shareholder | Number of shares |
|---|---|
| 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 |
»Ê¹ÚÌåÓýapp 20 other shareholders are individuals and none of the shareholders is an associate of any other. A, B and C are the directors. »Ê¹ÚÌåÓýappy 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).
»Ê¹ÚÌåÓýapp company is a close company from 1 January 1992.
Example 7
»Ê¹ÚÌåÓýapp authorised and issued capital of an investment company is £33,000and is owned equally by eleven individuals who are not associated. »Ê¹ÚÌåÓýapp loan creditors are:
| Loan Creditors | Amounts owed |
|---|---|
| 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 |
| Ìý | - | £140,000 |
| 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 |
»Ê¹ÚÌåÓýapp 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
»Ê¹ÚÌåÓýapp 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. »Ê¹ÚÌåÓýapp 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
»Ê¹ÚÌåÓýapp 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.