An easy associated companies question

by **Kitty Kat** on Thu May 26, 2011 10:20 am

Easy for everyone but me that is...

Company A is owned:
25% Mr Smith
25% Mr Jones
25% Mr Green
25% Other small holders

Company B is owned in the exact same way. They are associated right? A is controlled by 3 people who also control B. For some reason I have it in my head that the above would only apply if the three were related, but is that irrelevant?

by **section 44** on Thu May 26, 2011 10:34 am

Not necessarily.

I assume that none of the shareholders are related or spouses/civil partners.

For the companies to be associated then these individuals would need to act together to control each company. Do they act together to control either company? Steele v EVC would be worth a read. Is there a shareholders agreement (for example) setting out how each company will be controlled. Absent such an agreement (or similar document) then these individuals do not act together to control either company and they are not associated.

by **collich** on Thu May 26, 2011 1:23 pm

Mmm - not sure I follow section 44's answer or see the relevance of Steele v EVC. Surely these two companies are associated under the "irreducible group" rules.

Both company A and B are both controlled by the same irreducible group (Mr Smith, Mr Jones and Mr Green - 75%) - (s.450(5) CTA 2010)

by **section 44** on Thu May 26, 2011 1:59 pm

Common shareholders alone is insufficient. Section 450(5) refers to two or more persons "together" controlling. The key point is "together".

by **Kitty Kat** on Thu May 26, 2011 2:09 pm

section 44 wrote:Common shareholders alone is insufficient. Section 450(5) refers to two or more persons "together" controlling. The key point is "together".

I take your point, they could all pull in opposite directions after all.

A further spin off question, if a shareholder has 50% control and has a sister/cousin/aunt who also owns a share, are they deemed to control the company (as the sister/cousin/aunt's holding is considered to be theirs)?

by **collich** on Thu May 26, 2011 2:26 pm

section 44 wrote:Common shareholders alone is insufficient. Section 450(5) refers to two or more persons "together" controlling. The key point is "together".

I'm afraid I can't agree. The connected party rule in s.1122(4) CTA 2010 requires two persons to be "acting together" and the rule in s.450(5) only requires you to consider two persons "together". The case Steele v IRC you are referring to is a connected party case not an associated company case.

The difference in wording must mean there is a difference in meaning and for associated companies it is simply a matter of finding common ownership (the irreducible group).

The two companies are associated, there are not necessarily connected.

by **section 44** on Thu May 26, 2011 3:20 pm

Steele v EVC is about control (although control is relevant to associated companies). I take your point re "together" and "acting together" - you may be correct and, if so, then that is the crux of it. I haven't looked at the detail but I will keep this in mind to check, as and when I do need to look at it. Thanks.