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Income and Corporation Taxes Act 1988

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414Close companies

(1)For the purposes of the Tax Acts, a “close company” is one which is under the control of five or fewer participators, or of participators who are directors, except that the expression does not apply—

(a)to a company not resident in the United Kingdom;

(b)to a registered industrial and provident society within the meaning of section 486(12) or to a building society;

(c)to a company controlled by or on behalf of the Crown, and not otherwise a close company; or

(d)to a company falling within section 415 or subsection (5) below.

(2)Subject to section 415 and subsection (5) below, a company resident in the United Kingdom (but not falling within subsection (1)(b) above) is also a close company if—

(a)on the assumption that it is so, or

(b)on the assumption that it and any other such company or companies are so,

more than half of any amount falling to be apportioned under section 423 in the case of the company (including any sum which has been apportioned to it, or could on either of those assumptions be apportioned to it, under that section) could be apportioned among five or fewer participators, or among participators who are directors.

(3)In ascertaining under subsection (2) above whether any amount could be apportioned among five or fewer participators or among participators who are directors, account shall, in cases where an original apportionment and any sub-apportionment are involved, be taken only of persons among whom that amount could finally be apportioned as the result of the whole process of original apportionment and sub-apportionment and those persons shall be treated as participators or directors if they are participators or directors of any company in the case of which either an original apportionment or any sub-apportionment could be made.

(4)For the purposes of this section—

(a)a company is to be treated as controlled by or on behalf of the Crown if, but only if, it is under the control of the Crown or of persons acting on behalf of the Crown, independently of any other person, and

(b)where a company is so controlled, it shall not be treated as being otherwise a close company unless it can be treated as a close company as being under the control of persons acting independently of the Crown.

(5)A company is not to be treated as a close company—

(a)if—

(i)it is controlled by a company which is not a close company, or by two or more companies none of which is a close company; and

(ii)it cannot be treated as a close company except by taking as one of the five or fewer participators requisite for its being so treated a company which is not a close company;

(b)if it cannot be treated as a close company except by virtue of paragraph (c) of section 416(2) and it would not be a close company if the reference in that paragraph to participators did not include loan creditors who are companies other than close companies.

(6)References in subsection (5) above to a close company shall be treated as applying to any company which, if resident in the United Kingdom, would be a close company.

(7)If shares in any company (“the first company”) are held on trust for an exempt approved scheme as defined in section 592, then, unless the scheme is established wholly or mainly for the benefit of persons who are, or are dependants of, directors or employees or past directors or employees of—

(a)the first company; or

(b)an associated company of the first company; or

(c)a company which is under the control of any director or associate of a director of the first company or of two or more persons each of whom is such a director or associate; or

(d)a close company;

the persons holding the shares shall, for the purposes of subsection (5) above, be deemed to be the beneficial owners of the shares and, in that capacity, to be a company which is not a close company.

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