Close Company Guide
In the UK there is a term called a "close company" status, which is entirely different from closing a company down and it only affects private limited companies (Ltd.).
The term does not apply to sole traders or Limited Liability Partnerships. A close company has five or fewer participators whereby a participator is an individual or company shareholder of the organisation concerned.
What is a Close Company?
Definition of a Close Company
A close company is a private limited company owned or controlled by the participators or that has five or fewer participators.
Following on from the statements above most small businesses in the UK are close companies because they are small and usually only have one or two shareholders or people who have controlling interests.
But the definition changes if all shareholders are directors and it doesn't matter how many there are - as there can be more than five. If the organisation resides outside of the UK or any of the shareholders are not closed companies themselves, then the company cannot fall under the close definition.
What Are Participators?
In this context, a participator is any person that has a financial obligation in the limited company concerned. For example:
- Any value of shareholding in the capital.
- Voting rights in board or shareholders' meetings.
- Rights to the net proceeds on closing or winding up the company.
Examples of the titles of the individuals mentioned above could include:
- A company shareholder.
- A company director.
- The creditor of a secured business loan or debenture charge against the company.
Where a Company Can Not Be Close
There are certain conditions laid down by HMRC where the company cannot class themselves as a close company. These are:
- The company is controlled (under any of the control tests in CTM60210 to CTM60250) by an open company, or by two or more open companies, and
- It cannot be treated as a close company (under the control tests in CTM60210 to CTM60250 or the winding-up test in CTM60320) except by including an open company in the group of five or fewer participators.
- The company can only be shown to be close under the control test in ICTA88/S416 (2)(c) (entitlement to receive the greater part of the assets in a winding-up, etc., see CTM60230), and
- The company would not be close under the control test if the reference to 'participators' in Section 416(2)(c) excluded loan creditors who are open companies.
Closing Down a Company
Many people thinking of closing down a company (or winding it up and going through insolvency) will have reached this article by searching for close company so here are some practical steps if this is what you are looking for.
- Be absolutely sure you won't need the company in the future as it's a lot of work and money to spend either yourself or through an agent or accountant to prepare the accounts and paperwork for HMRC. These are statutory procedures and must be followed.
- If you are sure the company is no longer required, then prepare the final accounts to be filed with the Inland Revenue and pay the final corporation taxes under form CT600. HMRC also need to be informed that these are your final accounts before you dissolve the company.
- Once you have paid any outstanding taxes, HMRC needs informing of the dissolution.
- You need to inform the Payroll Inspector of Taxes your company has ceased trading and complete the final P35 employee return form and pay any outstanding PAYE tax and National Insurance contributions. You should have already completed final P45s for all employees and followed redundancy law if this applies to your business.
- If you are VAT registered, then you need to inform HMRC that you have ceased trading and want to de-register for VAT. You should prepare your final VAT return and pay any outstanding debt.
Once the company has ceased trading for three months, you can advise companies house to dissolve the company and complete form 652a. They will advertise in the London Gazette for up to 9 months at which point the company will be dissolved and cease to exist. Ensure there are no monies left in business bank accounts as these may be frozen and taken from the company to the government.
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