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CTA2010/S398

Companies without share capital present a risk because they can be used to break a chain of ownership. Companies without share capital can be incorporated within otherwise normal group structures.

The problem is illustrated by the following example.

In this example B Co is a company limited by guarantee. It has no share capital. It holds 100% of the shares in A Ltd, the lessor company. It is not a subsidiary of C Ltd because C Ltd holds no shares in B Co.

Commercially, the relationship between C Ltd and B Co will ensure that C Ltd controls B Co - otherwise D Ltd’s group would lose any profits from A and B. In this example it is assumed that C Ltd holds all the voting rights in B Co and is entitled to all of the distributable profits and the assets on a winding up.

Without special rules B Co is the principal company in relation to A Ltd. The 75% chain cannot continue above B Co.

The sale of B Co would not trigger a charge because there is no change in the relationship between B Co and A Ltd.

The special rules for companies with no share capital change this outcome where there is control for the purposes of section 1124 CTA2010.

If, in this example, C Ltd holds all the voting rights in B Co and is entitled to all of the distributable profits and the assets on a winding up B Co is treated as a 75% subsidiary of C Ltd and the chain continues up to D Ltd which is now the principal company in relation to A Ltd.

With this adjustment the sale of B Co becomes a relevant change in the relationship between A Ltd and its principal company, D Ltd.