Close company status of subsidiary companies

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If a parent company is a close company under CTA2010 s439 then does this make all 100% owned subsidiaries of said company also close companies? Thanks for any guidance given.

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By Tax Dragon
24th Jun 2017 19:31

It's not unlikely, but it's not certain. The most obvious exception would be subsidiaries that are not resident in the UK. Presumably too if the company is close by virtue of (2)(b) only, it does not follow that subs would necessarily be close.

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By Roundwood20
25th Jun 2017 10:23

Thanks Tax Dragon for prompt reply; all companies are UK resident; the parent company has greater than 5 participators however one of which ( who is also a director) holds >50% of the shares and voting rights; thus control and parent company a close company. Have looked at the exemptions in s442 - 447 and can't see one which will apply so by default get to position that subsidiaries are close. However reading the definition of participator in s454 it refers to "person", can't immediately see if a "person" in relation to s439 can mean a corporate body as well as an individual? If it does then think subsidiaries are also close? Understand though that a participator in a parent company is also deemed to be a participator in any company which is controlled by parent company for the purposes of say a s455 charge. Further thoughts? Thanks.

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By Portia Nina Levin
25th Jun 2017 16:22

Yes. on the basis that by "subsidiaries", you do mean 51% subsidiaries, then they will be close companies if the parent company is a close company (on whatever basis).

The reason being that they are controlled by 5 or fewer participators - they are controlled by a single participator - and are not precluded by s 444 from being a close company. S 442(a) has been eliminated from being relevant.

"Person" means a legal person, which includes both real persons (individuals) and artificial persons (bodies corporate).

Incidentally, we're not interested in who the partcipators are, but whether there is an irreducible group of persons that control it and either:
- number 5 or fewer (less BKD!), or
- who are all directors.

You note that there is a director who has in excess of 50%. Whilst it is true that he is a director, notwithstanding that he is a director, he is also an irreducible group of persons (numbering fewer than 6) that has control. That means that s 439(2)(a) is satisfied - not that it has any impact on the application of the tests to the subsidiaries.

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By Roundwood20
25th Jun 2017 16:32

Thanks Portia for your response; understand the rationale; do you have the legislation reference to hand in respect of the definition of "person"? Thanks.

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By Portia Nina Levin
25th Jun 2017 17:01

The only definition of the word "person" that I am aware of is in the Interpretation Act 1978, Sch 1.

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By Tax Dragon
25th Jun 2017 18:27

I concur with Portia's replies in every regard.

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By Roundwood20
26th Jun 2017 06:51

Thanks Tax Dragon and Portia for your help over weekend on this; much appreciated.

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