Close companies
Meaning of participator and associate
Who is a participator?
A participator is a person who has a share or interest in the capital or income of a company. This person could be, for example, an individual or a company. This includes any person who:
- has share capital or voting rights in the company
- is a loan creditor of the company (except in respect of an ordinary bank loan)
- has rights to company distributions
- has rights to a premium on redemption of loan capital
- can use company assets or income (whether present or future) directly or indirectly for their benefit.
The tests above apply to both present and future entitlements. For example, a person who has the power to acquire voting rights at a future date is also regarded as a participator.
Rights and powers attributable to a participator
When determining who controls a company, the rights and powers of certain other persons are attributed to a participator. The rights and powers of the following persons will count as those of a participator:
- the participator’s nominees
- the participator’s associates
- the nominees of the participator’s associates
- any company which the participator controls (by themselves or together with their associates).
The rights and powers of the associates of an associate are not attributed to a participator.
Who is an associate?
An associate of a person includes:
- a relative (meaning a spouse, civil partner, sibling, ancestor, or lineal descendant)
- a person’s partner in a partnership
- a trustee of any settlement in which the person or their relative is a settlor
- and
- another person interested in the same shares or obligations of a company as the person, which are part of a trust or a deceased person’s estate.
- Example
The following persons are shareholders in a company (none of whom are directors):
|
Shareholder
|
Interest
|
|
A
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15%
|
|
B (A’s uncle)
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12%
|
|
C (A’s nominee)
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10%
|
|
D Co. (a company controlled by A)
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7%
|
|
E (who is also a partner of A in a limited partnership)
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5%
|
|
F (A’s grandfather)
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4%
|
|
G (A’s sister)
|
2%
|
|
45 other individuals (each holding 1%)
|
45%
|
The sum of the five largest shareholder interests equals 49%.
However, the interests of A's nominee (C), the company controlled by A (D Co.) and A's associates (E, F and G) are attributed to A. An uncle is not included in the definition of a relative under the close company rules. As such, B is not an associate of A. The total deemed interest of A is therefore 43%. As two participators (A and B) are regarded as controlling 55% of the company, the company is a close company.
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