What is a Close Company? A Basic guide

Close Guide to the Business

In the United Kingdom, there is a term called "close company" status, which is not the same as closing a business and solely impacts private limited corporations (Ltd.).

Sole traders and Limited Liability Partnerships are exempt from the term. A close company is one with five or fewer participants, each of whom is an individual or a company shareholder of the firm in question.

What is the definition of a close corporation?

A Close Company is defined as a group of people who work together closely.

A close company is a private limited business with five or fewer participants that is owned or controlled by the participants.

Following on from the preceding assertions, most small businesses in the United Kingdom are close corporations since they are small and typically have only one or two shareholders or controlling interests.

However, if all shareholders are directors, the definition changes, and it doesn't matter how many there are - there can be more than five. If the organisation is based outside of the United Kingdom, or if any of the shareholders are not closed corporations, the company will not be considered closed.

What Is a Participant?

A participant in this sense is someone who has a financial commitment in the limited corporation in question. Consider the following scenario:

• Any capital value of a stake.

• Right to vote at board or shareholder meetings.

• On closing or winding up the company, you have the right to the net proceeds.

The following are some examples of titles for the individuals mentioned above:

• A shareholder of a corporation.

• A director of a firm.

• A secured business loan or debenture creditor who holds a charge against the company.

Where a Business Cannot Be Closed

HMRC has specified specific situations under which a firm cannot be classified as a close company. These are the following:

An open company, or two or more open companies, controls the company (under any of the control tests in CTM60210 to CTM60250), and

Except by including an open company in the group of five or fewer participants, it cannot be classified as a close company (under the control tests in CTM60210 to CTM60250 or the winding-up test in CTM60320).

Only the control test in ICTA88/S416 (2)(c) (entitlement to acquire the greater part of the assets in a winding-up, etc., see CTM60230) can prove that the company is close.

If the term to participants' in Section 416(2)(c) excludes loan creditors who are open corporations, the company would not be close under the control test.

Putting a Business to Rest

Many people considering closing down a business (or winding it up and filing for bankruptcy) will have found this site by searching for a close company, so if that's what you're looking for, here are some practical steps to take.

Make sure you won't need the company in the future because it takes a lot of time and money to prepare the accounts and documentation for HMRC, whether you do it yourself or hire an agent or accountant. These are legal requirements that must be obeyed.

Prepare the final accounts to be lodged with the Inland Revenue and pay the final corporation taxes using form CT600 if you are certain the firm is no longer necessary. Before you dissolve the firm, you must also notify HMRC that these are your final accounts.

HMRC must be notified of the dissolution once any overdue taxes have been paid.

You must notify the Payroll Inspector of Taxes that your business has ceased operations, complete the last P35 employee return form, and pay any overdue PAYE tax and NI contributions. If your company is subject to redundancy laws, you should have already completed final P45s for all employees.

If you are VAT registered, you must notify Hmrc that your business has ceased operations and that you wish to de-register for VAT. Prepare your final VAT return and settle any outstanding debts.

Accountants in Catford help small businesses & startups with their accounting and taxation matters, bookkeeping to keep their business running perfectly.

Accountants in Croydon help small businesses and startups with their accounting and taxation matters, to keep their business running smoothly.