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.
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.
Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.
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.