In case you are wondering about what is a close company? and if you have ever heard of a company that is controlled by a small group of individuals, then you are halfway there to have a complete understanding of a close company. It is important to know that the income produces by such companies is distributed among owners as well. It is possible for the owners that they can manipulate business activities to have a direct impact on their tax position.
For a better understanding, this article will further explain the following listed points of discussion:
- What is a close company?
- Close Company – Examples
- Rules for the Tax purpose
- The Bottom Line
What Is A Close Company?
The most popular examples of close companies are family businesses and private businesses. However, it is often not apparent immediately, that a company is clearly known with the status of a close company. There are certain factors to know the status of a company. This includes the following:
- A clear idea of the director and the participatory of the company
- Associations of the participators
- The voting power of the participatory and other attributed rights
- The rights related to wind up of a company
Close Company – Examples:
Close companies carry out business all over the world. They are also associated with a wide range of businesses like financial services, manufacturing products and other business services. The business world is full of such examples. Like:
- Food focused close companies that deal in purchasing and selling agricultural commodities.
- There are some examples of family-owned pet food businesses that are equally prevailed in the world.
- There are firms that provide financial services and generate remarkable revenue of their own kind as well.
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Further, in the discussion of what is a close company and participatory, we can simply say that a company tend to own by multiple people which can be a maximum of five or fewer is known to be a close company. Often, such examples are privately owned. Whereas, the participatory are the people who take a financial interest in a close company.
Let’s say Mrs A is the only director and shareholder of a business referred to as Mrs A Ltd. Mrs A is its participator. Because Mrs A Ltd has 5 or fewer participators, it’s a close business example. Drs B, C, D, E, F and G are all administrators and shareholders of a business referred to as Drs BCDEFG Ltd. They are the business participators. Because all of the participators also are directors, Drs BCDEFG Ltd is an example of a close company.
They have the voting power, the rights to wind up the company and most importantly, they share the capital. The shareholders, loan creditors and the directors are all falling in the list of participators.
Rules For Tax Purpose:
There is a certain set of rules to be applied when a close company provides loans which is directly or indirectly advantageous for the directors and participators. Most private companies are examples of close companies.
In case, a participator intends to extract a certain amount from the company and tries to avoid the tax charges. The special rule of charging corporation tax will be imposed. Sometimes, even the company come under the influence of such rules and the participators are ensured to be there.
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The Bottom Line:
Now that you know what is a close company, we can sum up the discussion by saying that many privately-owned businesses can come under the list of close companies. However, some factors are still excluded which are crown controlled companies, or building societies etc. We hope this article helped to develop a better understanding of a close company and relevant details.
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Disclaimer: This article intends to provide a piece of general information based on what is a close company.