What does a close company mean?
A close company is simply a limited corporation with five or fewer “participators” having ownership or control over the business – however, most of the time, participators are the company’s shareholders.
This may sound straight forward, but there can be some more complex variations in some cases.
For example, if all participators are directors and have control of the business, or if all participators who are directors together hold or gain the rights to receive some of the business’s assets on a notional winding up.
If you are unsure whether your company is classified as a close company, please don’t hesitate to get in contact with us here at Farnell Clarke.
What is the difference between an Open and a Close Company?
There are a variation of businesses that are excluded from being a close company – such as a registered industrial and provident society or building society, or a company controlled by the Crown. These are also known as ‘Open Companies’.
A wide majority of smaller companies are commonly close companies, but this can be judged through counting your participators and/or reviewing if all your participators are also directors.
Find out more about Open Companies via the government’s company taxation manual here.
What are the Close Company Tax Rules?
In terms of tax rules, there are some special ones which apply to a close company, for tax purposes.
They address businesses closely controlled by, for example, a family or a small group of people. It is advisable to do thorough research or consult an external advisor.
A close company must self-assess tax liabilities in respect of loans to participators or associates, which can result in the requirement to make tax payments to Revenue & Customs equal to 32.5% for 21/22 and moving up to 33.75%.
What are the implications of being a close company?
There are a few implications to being a close company, things such as:
- Loans to participators
- Generating a corporation tax exposure
- Transfers of value
- Generating an inheritance tax exposure
- Interest on loans to a close company
- Generating an income tax deduction
It is crucial to always be aware of your tax obligations, so do thorough research or consult an expert if you are unsure.
Can a listed company be a close company?
The short answer is no, a company whose shares have been accepted for trading on a stock exchange, cannot be a close company, however, saying this, there is exclusion for some certain listed companies.
The fact that the company’s shares are publicly listed does not of itself prevent the company from being close.
Do you still have questions? If you need further guidance and advice when it comes to being a close company, please do not hesitate to get in contact with us and we can talk you through any queries you may have.
