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Market value of certain shares in private trading companies.
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16.—(1) The market value of each share in a private trading company which (after the taking of the gift or of the inheritance) is, on the date of the gift or on the date of the inheritance, a company controlled by the donee or the successor, shall be ascertained by the Commissioners, for the purposes of tax, as if it formed part of a group of shares sufficient in number to give the owner of the group control of the company.
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(2) In this section—
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“nominee” includes a person who may be required to exercise his voting power on the directions of, or who holds shares directly or indirectly on behalf of, another person;
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“private company” means a body corporate (wherever incorporated)—
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(a) in which the number of shareholders (excluding employees who are not directors of the company and any shareholder who is such as nominee of a beneficial owner of shares) is not more than fifty;
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(b) which has not issued any of its shares as a result of a public invitation to subscribe for shares; and
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(c) which is under the control of not more than five persons;
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“private trading company” means a private company which is not a private non-trading company within the meaning of section 17.
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(3) In this section, a reference to a company controlled by the donee or successor is a reference to a company that is under the control of any one or more of the following, that is to say, the donee or successor, the relatives of the donee or successor, nominees of the donee or successor, nominees of relatives of the donee or successor, and the trustees of a settlement whose objects include the donee or successor or relatives of the donee or successor; and for the purposes of this section, a company which is so controlled by the donee or successor shall be regarded as being itself a relative of the donee or successor.
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(4) For the purposes of this section—
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(a) a company shall be deemed to be under the control of not more than five persons if any five or fewer persons together exercise, or are able to exercise, or are entitled to acquire, control, whether direct or indirect, of the company; and for this purpose—
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(i) persons who are relatives of any other person together with that other person;
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(ii) persons who are nominees of any other person together with that other person;
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(iii) persons in partnership; and
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(iv) persons interested in any shares or obligations of the company which are subject to any trust or are part of the estate of a deceased person,
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shall respectively be treated as a single person; and
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(b) a person shall be deemed to have control of a company at any time if—
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(i) he then had control of the powers of voting on all questions, or on any particular question, affecting the company as a whole, which, if exercised, would have yielded a majority of the votes capable of being exercised thereon, or could then have obtained such control by an exercise at that time of a power exercisable by him or at his direction or with his consent;
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(ii) he then had the capacity, or could then by an exercise of a power exercisable by him or at his direction or with his consent obtain the capacity, to exercise or to control the exercise of any of the following powers, that is to say—
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(I) the powers of a board of directors of the company;
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(II) powers of a governing director of the company;
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(III) power to nominate a majority of the directors of the company or a governing director thereof;
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(IV) the power to veto the appointment of a director of the company, or
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(V) powers of a like nature;
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(iii) he then had a right to receive, or the receipt of, more than one-half of the total amount of the dividends of the company, whether declared or not, and for the purposes of this subparagraph, “dividend” shall be deemed to include interest on any debentures of the company; or
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(iv) he then had an interest in the shares of the company of an aggregate nominal value representing one-half or more of the aggregate nominal value of the shares of the company.
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