Commentary on Sections Overview Overview Section 134: Qualifying trading companies
435.This section is the first of 13 sections which apply only to shares to which EIS relief is not attributable. It is based on section 576(4) of ICTA. It defines what is a qualifying trading company. Shares, other than shares to which EIS relief is attributable, must form part of the ordinary share capital of a qualifying trading company if they are to be qualifying shares (see section 131(2)(b) and the definition of “shares” in section 151(1) and (3) to (6)).
436.Section 576(4) of ICTA defines a “qualifying trading company” in terms of its being an “eligible trading company” and having been such for a specified continuous period. Section 576(4A) of ICTA defines an “eligible trading company” by applying the requirements of section 293 and other provisions of Chapter 3 of Part 7 of ICTA (Enterprise investment scheme) with modifications.
437.This section avoids the double layer of definition in section 576(4) of ICTA and omits the concept of an “eligible trading company”.
438.Subsection (2), therefore, directly introduces the four requirements of section 293 of ICTA (as modified and applied by section 576(4A) and (4B) of that Act) which must be met on a continuing basis (see also subsection (3)).
439.Subsections (2)(b) and (3)(b) omit the words “that is not an eligible trading company” which qualify “trading company” in section 576(4)(a)(ii) and (b)(ii) of ICTA on which those paragraphs are based. Those words are otiose.
440.Subsection (4) directly introduces the two requirements of section 293 of ICTA (as modified and applied by section 576(4A) and (4B) of that Act) which are to be met only when the shares in respect of which share loss relief is claimed are issued.
441.This direct application of these two requirements resolves the apparent inconsistency between sections 293 and 576(4) of ICTA. Section 293 of ICTA requires them to be met only at the time of issue of the shares. But section 576(4) of that Act requires the company to be an eligible trading company at a subsequent time and during a continuous period. Section 576(4) of ICTA thus appears to require the company to meet these requirements also at that subsequent time and during that period.