Revenue Note for Guidance

431 Certain companies with quoted shares not to be close companies

Summary

This section provides that a company is regarded as not being a close company if shares carrying 35 per cent or more of the voting rights are held by the public and the shares have been dealt in on a stock exchange during the previous 12 months. This rule applies only where not more than 85 per cent of the voting power is in the hands of the principal members. Shares held by a company which is not a close company or on trust for an approved superannuation scheme are regarded as held by the public, provided such company or trust is not a principal member and does not come within certain specific exclusions. These exclusions are that shares are not treated as held by the public if they are held —

by a director of the company or an associate of the director,
by a company controlled by such persons,
by an associated company, or
as part of a fund which can be applied for the benefit of any directors or employees (past or present) – or their dependants – of the company or any connected company.

Details

(1) The term “share” includes “stock”.

(2)(a) & (b) The “principal member” of a company is defined by reference to the voting power which a person holds or which can be attributed to that person. If, on that basis, the person is one of the 5 persons holding the largest voting power and the person’s voting power exceeds 5 per cent, the person is regarded as a principal member. Where there are 2 or more equal holdings, the number of principal members is increased to more than 5 to bring in those equal holdings.

Example

Shareholder	Percentages of First company		Voting power held Second company
A.	12		10
B.	11	Principal	9	Principal
C.	10	Members	8	Members
D.	9		88
E.	8		7
F.	7		7
G.	6		6
H.	6		6

In the case of the first company, although 8 persons hold more than 5%, only the first 5, A to E, count as principal members but not F to H. In the case of the second company, there is equality between some of the largest holdings and, therefore, the first 6, A to F, count as principal members but not G and H.

(2)(c) Any voting power which a member can exercise through a nominee, or through a company or companies of which the member or the member and associates of the member (including nominees of such associates) have control, is attributable to the member. Also attributable to a member is any voting power which can be exercised by the member’s associates or by their nominees.

(3) A company is not regarded as a close company if shares carrying 35 per cent or more of the voting power (without reckoning fixed rate dividend shares, whether with or without further participating rights) are held by the public. This rule applies provided the shares have been dealt in during the previous 12 months on a recognised stock exchange.

(4) The above rule (subsection (3)) is not to apply to a company if more than 85 per cent of the voting power is in the hands of the principal members.

(5) Shares are regarded as held beneficially by the public only if they satisfy the conditions of subsection (6) and are not within the exceptions in subsection (7).

(6) Shares are to be regarded as beneficially held by the public if they are held by a company which is not a close company or if they are held on trust by an exempt approved superannuation scheme or if they are not held by a principal member.

(7)(a) Shares are not treated as held by the public if they are held —

by a director or associate of a director of the company,
by any company controlled by such director or associate or 2 or more such persons,
by an associated company of the company, or
as part of any fund the capital or income of which can be applied for the benefit of any directors or employees (past or present) – or their dependants – of the company or of any connected company.

(7)(b) The powers attaching to shares held by nominees are regarded as exercisable by the beneficial owners.

Relevant Date: Finance Act 2021