Circular shareholding.
Discussion
I came across this situation in NZ (very similar company rules to UK).
All shares in company D are owned by company C.
All shares in company C are owned by company B.
All shares in B are owned by A
and all shares in A owned by D
Shareholders appoint the directors and share in the profits, and everything goes round in a big circle.
The directors for the various companies are different.
And there are other companies wholly owned by this group of companies.
I thought the ultimate shareholder(s) had to be a natural person not a legal entity.
Well this was an ideal opportunity to get in touch with the NZ arm of my empire and they write: 'Shareholdings have to be consented, so responsibility would end up with the Directors of the companies. Each company would also be responsible for tax on the dividend distribution, resulting in a large portion of retained profits being handed over to the govt. As soon as any of the money ends up in the director's pocket, income tax is payable, and the company merry-go-round would end.'
HTH!
HTH!
OP, it's been a while since I did this sort of stuff day to day, but I don't think that structure would be permissible in the UK.
As to the ultimate shareholders of a UK company having to be a natural person, I'm not convinced you are right, given the complexity of tax structures. That said, the fairly recent requirement for a "person of significant control" statement is a partial response to that (albeit arguably driven by terrorism concerns as much as concerns about tax evasion).
As to the ultimate shareholders of a UK company having to be a natural person, I'm not convinced you are right, given the complexity of tax structures. That said, the fairly recent requirement for a "person of significant control" statement is a partial response to that (albeit arguably driven by terrorism concerns as much as concerns about tax evasion).
caziques said:
I came across this situation in NZ (very similar company rules to UK).
All shares in company D are owned by company C.
All shares in company C are owned by company B.
All shares in B are owned by A
and all shares in A owned by D
Shareholders appoint the directors and share in the profits, and everything goes round in a big circle.
The directors for the various companies are different.
And there are other companies wholly owned by this group of companies.
I thought the ultimate shareholder(s) had to be a natural person not a legal entity.
It is illegal in the UK (and in Japan, where I've also had to investigate this type of arrangement) for a subsidiary to own shares in a parent. It can happen sometimes as a result of an acquisition, but in that case the subsidiary has to dispose of the shares in a timely fashion (the law doesn't exactly specify the timescale; it is for a court to decide what was timely).All shares in company D are owned by company C.
All shares in company C are owned by company B.
All shares in B are owned by A
and all shares in A owned by D
Shareholders appoint the directors and share in the profits, and everything goes round in a big circle.
The directors for the various companies are different.
And there are other companies wholly owned by this group of companies.
I thought the ultimate shareholder(s) had to be a natural person not a legal entity.
It is quite possible for ultimate shareholders not to be a natural person; think about what happens if a charity owns shares, for instance. A charity has no shareholders, only Members who control the charity for the benefit of society. There are a few other analogous structures. But it is certainly the exception.
Under Common Law, it has long been the case that a majority-owned subsidiary could not vote any shares it held in its parent (the statutes barring such ownership came along only later). Miinority-owned subsidiaries are a different case, but that doesn't apply to your example.
Anyhow, a quick Google turns up the NZ Companies Act 1993 which at §82 says:
NZ Companies Act 1993 said:
82 Subsidiary may not hold shares in holding company
(1) Subject to this section, a subsidiary must not hold shares in its holding company.
(2) An issue of shares by a holding company to its subsidiary is void and of no effect.
(3) A transfer of shares in a holding company to its subsidiary is void and of no effect.
(4) Where a company that holds shares in another company becomes a subsidiary of that other company—
(a) the company may, notwithstanding subsection (1), continue to hold those shares; but
(b) the exercise of any voting rights attaching to those shares shall be of no effect.
(5) Where a company on reregistration under this Act in accordance with the Companies Reregistration Act 1993 held shares in another company and was a subsidiary of that other company,—
(a) the company may, notwithstanding subsection (1), continue to hold those shares; but
(b) the exercise of any voting rights attaching to those shares shall be of no effect.
(6) Nothing in this section prevents a subsidiary holding shares in its holding company in its capacity as a personal representative or a trustee unless the holding company or another subsidiary has a beneficial interest under the trust other than an interest that arises by way of security for the purposes of a transaction made in the ordinary course of the business of lending money.
(7) This section applies to a nominee for a subsidiary in the same way as it applies to the subsidiary.
On the face of it, therefore, the structure you describe is illegal under NZ law.(1) Subject to this section, a subsidiary must not hold shares in its holding company.
(2) An issue of shares by a holding company to its subsidiary is void and of no effect.
(3) A transfer of shares in a holding company to its subsidiary is void and of no effect.
(4) Where a company that holds shares in another company becomes a subsidiary of that other company—
(a) the company may, notwithstanding subsection (1), continue to hold those shares; but
(b) the exercise of any voting rights attaching to those shares shall be of no effect.
(5) Where a company on reregistration under this Act in accordance with the Companies Reregistration Act 1993 held shares in another company and was a subsidiary of that other company,—
(a) the company may, notwithstanding subsection (1), continue to hold those shares; but
(b) the exercise of any voting rights attaching to those shares shall be of no effect.
(6) Nothing in this section prevents a subsidiary holding shares in its holding company in its capacity as a personal representative or a trustee unless the holding company or another subsidiary has a beneficial interest under the trust other than an interest that arises by way of security for the purposes of a transaction made in the ordinary course of the business of lending money.
(7) This section applies to a nominee for a subsidiary in the same way as it applies to the subsidiary.
The legal and beneficial position may not be the same. For example an employee ownership trust could own all the shares beneficially, but the trustees could be a corporate trustee company, which happens to be a subsidiary of the trading company. Therefore legally the trustee company owns the shares, which can make it look circular but it is not.
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