What is a close company?

Definition of close company

A close company is a limited company with five or fewer 'participators', or a limited company of which all the 'participators' are also directors.

For most small limited companies, 'participators' will just mean shareholders. If the company has issued debt finance called debentures, then the holders of the debentures will also be participators.

Example of a close company:

Mrs A is the sole director and shareholder of a company called Mrs A Ltd. Mrs A is its only participator. Because Mrs A Ltd has five or fewer participators, it’s a close company.

It's the end of the tax return as we know it! Find out about HMRC’s Making Tax Digital plan and how it will affect you with our free guide.

Drs B, C, D, E, F and G are all directors and shareholders of a company called Drs BCDEFG Ltd. They are the company’s only participators. Because all the participators are also directors, Drs BCDEFG Ltd is a close company.

Frequently Asked Questions

What is the difference between a close company and any other limited company?

If a close company makes a loan to a participator that isn’t repaid within nine months and one day of the company’s year end, the company will have extra tax to pay.

Got questions? Ask Emily!

FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.