{"id":180998,"date":"2023-05-17T00:50:46","date_gmt":"2023-05-16T23:50:46","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=180998"},"modified":"2025-11-12T23:00:28","modified_gmt":"2025-11-12T23:00:28","slug":"substantial-property-transaction-directors","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/substantial-property-transaction-directors\/","title":{"rendered":"What is a Substantial Property Transaction Involving Directors in the UK?"},"content":{"rendered":"\n<p>As a company director, you should know the law places several restrictions on certain transactions. This includes restrictions on directors involved in a substantial property transaction. The consequences of breaching these restrictions can be substantial. Hence, this article will explain how the law defines substantial property transactions involving directors. That way, you can identify which transactions may increase your liability.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is a Substantial Property Transaction?&nbsp;<\/h2>\n\n\n\n<p>A substantial property transaction is any transaction where your company buys or sells a substantial non-cash asset and where the asset is bought from or sold to a:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>director of the company;&nbsp;<\/li>\n\n\n\n<li>director of the company\u2019s holding company;&nbsp;<\/li>\n\n\n\n<li>person connected with a director of the company; or&nbsp;<\/li>\n\n\n\n<li>person connected with a director of the company\u2019s holding company.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>If any transaction meets the definition of a substantial property transaction, the company must obtain the approval of its shareholders. Otherwise, the transaction may be voidable. Likewise, the <a href=\"https:\/\/legalvision.co.uk\/corporations\/practical-considerations-substantial-property-transactions\/\">directors involved may face liability<\/a>.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Further Considerations<\/h2>\n\n\n\n<p>To fully understand the definition of a substantial property transaction, we need to define:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>what a qualifying transaction involving a \u201csubstantial non-cash asset\u201d entails;<\/li>\n\n\n\n<li>what a holding company is; and&nbsp;<\/li>\n\n\n\n<li>who a connected person may be.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Substantial Non-Cash Asset<\/h3>\n\n\n\n<p>As the term suggests, a transaction involving a substantial non-cash asset is anything other than a transaction for cash. This may involve the purchase or sale of:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>real property like land or buildings;&nbsp;<\/li>\n\n\n\n<li>heavy machinery, plants, or ships; or&nbsp;<\/li>\n\n\n\n<li>intangible property like shares, <a href=\"https:\/\/legalvision.co.uk\/intellectual-property\/how-you-can-use-another-business-intellectual-property\/\">intellectual property rights<\/a> or licences, and the benefit of contracts.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>For all companies, if the asset\u2019s fair market value is \u00a35,000 or less, the asset is not substantial. Likewise, the asset is substantial if its fair market value is \u00a3100,000 or more.&nbsp;<\/p>\n\n\n\n<p>Furthermore, non-cash assets between \u00a35,000 and \u00a3100,000 may be substantial depending on the company\u2019s net asset value (NAV). Specifically, if the value of the non-cash asset exceeds 10% of the company\u2019s NAV, the law considers it substantial.&nbsp;<\/p>\n\n\n\n<p>It is important to note that these thresholds are subject to periodic review and may be adjusted for inflation. Companies should regularly check the latest figures published by Companies House or seek legal advice to ensure compliance.<\/p>\n\n\n\n<div  class=\"box box--icon box--info\">\n    <p>Your company\u2019s NAV is calculated by subtracting the value of all liabilities from total assets according to your most recent company accounts. If you have not filed any accounts, the law treats your net asset value as equal to your called-up share capital.<\/p>\n<\/div>\n\n\n\n<p>Valuing non-cash assets can be complex, particularly for intangible assets or those with fluctuating market values. Companies may need to seek professional valuation services to ensure compliance with the law. It is also advisable to document the valuation process thoroughly in case of future scrutiny.<\/p>\n\n\n\n<p>For example, say your company intends to buy a boat worth \u00a380,000. Your company has an NAV is \u00a31m. In this instance, the boat is not a substantial non-cash asset. However, say your NAV is \u00a3500,000. In this instance, the boat is a substantial non-cash asset.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Connected Person&nbsp;&nbsp;<\/h3>\n\n\n\n<p>The law defines a connected person in several ways, as the table explains below.<\/p>\n\n\n\n<figure class=\"wp-block-table is-style-stripes\"><table><tbody><tr><td><strong>Connected Person<\/strong><\/td><td><strong>Explanation<\/strong><\/td><td><strong>Examples&nbsp;<\/strong><\/td><\/tr><tr><td><strong>Member of the director\u2019s family<\/strong><\/td><td>This includes:<br>+ spouses and civil partners;<br>+ anyone that the director lives with as a partner in the capacity of an enduring family relationship;<br>+ children and step-children of the director or any children of the person with whom the director lives; and <br>+ parents of the director.<\/td><\/tr><tr><td><strong>Associated Company&nbsp;<\/strong><\/td><td>An associated company includes any company where the director or someone connected to the director owns together 20% or more of the share capital of the other company.&nbsp;<\/td><td>You are a company director at YouCo Ltd. Your husband, who is neither a director nor a shareholder in YouCo, owns 25% of the shares in another company, HubbyCo Ltd.&nbsp;<br>HubbyCo Ltd is a connected person.&nbsp;<\/td><\/tr><tr><td><strong>Certain Trusts&nbsp;<\/strong><\/td><td>A connected person is a trustee of a trust in which the director or a connected person has an interest.&nbsp;<\/td><td>Your son is a beneficiary of a trust set up by your cousin in his will and your uncle is the trustee.&nbsp;<br>Your uncle is a connected person.&nbsp;<\/td><\/tr><tr><td><strong>Certain business partners&nbsp;<\/strong><\/td><td>Business partners of the director or business partners of a person connected to the director.<\/td><td>You are the company director of YouCo Ltd. You also have a general partnership business with a business with your university offering consulting services.&nbsp;Your university friend is a connected person.&nbsp;<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Holding Company&nbsp;<\/h3>\n\n\n\n<p>A <a href=\"https:\/\/legalvision.co.uk\/business-structures\/holding-company\/\">holding company<\/a> is any company that owns a majority of voting shares in another company. This other company is typically called a majority-owned subsidiary unless the holding company owns all the shares. In this case, you may hear the other company referred to as a wholly-owned subsidiary.<\/p>\n\n\n\n<p>Assuming the non-cash asset is substantial, consider the following transaction: HoldCo Ltd owns all the voting shares in SubCo Ltd. SubCo Ltd buys a \u00a3150,000 building from the wife of a director of HoldCo Ltd. This is a substantial property transaction. However, HoldCo Ltd\u2019s shareholders must approve the transaction rather than SubCo\u2019s shareholders (only HoldCo).&nbsp;<\/p>\n\n\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2024\/12\/11035207\/Screenshot-2024-12-11-at-2.51.56%E2%80%AFpm.png\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">Corporate Governance Guide for SMEs in the UK<\/div>\n            <div class=\"body-text\">\n                <p>This guide will help you to understand your corporate governance responsibilities as a director, including the decision-making processes<\/p>\n            <\/div>\n            \n\n<a 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The company purchases a car from your wife for \u00a311,000.&nbsp;<\/td><td>Alternatively, say you are a company director, and your company\u2019s NAV is \u00a3100,000. The company purchases a car from your cousin for \u00a311,000.&nbsp;<\/td><\/tr><tr><td>Your wife is a company director of a company with a wholly-owned subsidiary, which purchases land from you for \u00a3200,000.&nbsp;<\/td><td>You are a company director, and your company\u2019s NAV is \u00a3100,000. The company purchases a car from your husband for \u00a36,000.<\/td><\/tr><tr><td>Say your brother-in-law pays \u00a380,000 to purchase a boat from a company where you and your sister are directors. Your brother-in-law is your sister\u2019s spouse. The company\u2019s NAV is \u00a3500,000.&nbsp;<\/td><td>Your brother sells land to a company for which you are a director for \u00a312,000. The company\u2019s NAV is \u00a380,000.&nbsp;<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">Practical Considerations&nbsp;For Substantial Property Transactions<\/h2>\n\n\n\n<p>If you believe your company will enter a substantial property transaction, its shareholders can approve it. This ensures you or the rest of the directors face any subsequent liability. To pass a shareholder resolution, you must either convene a general meeting to approve the resolution or circulate a written resolution to all shareholders, seeking their written consent to approve the transaction. Subject to your company\u2019s articles of association, the shareholders must pass the resolution via an ordinary resolution (which requires the affirmative vote of shareholders holding more than 50% of the voting shares).&nbsp;<\/p>\n\n\n\n<div  class=\"box box--icon box--warning\">\n    <p>The consequences of not obtaining shareholder approval can make you personally liable.<\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Key Takeaways&nbsp;<\/h2>\n\n\n\n<p>As a company director, you should be aware that the law restricts you from entering into transactions where the company is either the purchaser or seller of substantial non-cash assets without shareholder approval. Nor can the non-cash asset transaction involve a connected person. Ultimately, the exact value of a substantial non-cash asset depends on the company. A connected person includes the director\u2019s close family, certain third-party companies, specific trusts, and select business partners. Your failure to obtain shareholder approval of the substantial property transaction means you may face personal liability. Regular review of company policies regarding substantial property transactions is advisable to ensure ongoing compliance with the <em>Companies Act 2006<\/em> and any subsequent amendments.<\/p>\n\n\n\n<p>If you need help with your business, our experienced <a href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\">corporate lawyers<\/a> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <a href=\"https:\/\/legalvision.co.uk\/membership\">membership page<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently Asked Questions<\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1684280439324\"><strong class=\"schema-faq-question\"><strong>What is a substantial property transaction involving directors?<\/strong><\/strong> <p class=\"schema-faq-answer\">A substantial property transaction is any transaction where your company either buys or sells a substantial non-cash asset from a director to certain connected third parties.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1684280458877\"><strong class=\"schema-faq-question\"><strong>Who is a connected person?<\/strong><\/strong> <p class=\"schema-faq-answer\">A connected person includes close family members like children, spouses, civil partners, and parents. It also includes business partners and certain trustees of trusts.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/180998\" \/>            <input value=\"https:\/\/legalvision.co.uk\/corporations\/substantial-property-transaction-directors\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What is a Substantial Property Transaction Involving Directors in the UK?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>As a company director, you should know the law places several restrictions on certain transactions. This includes restrictions on directors involved in a substantial property transaction. The consequences of breaching these restrictions can be substantial. Hence, this article will explain how the law defines substantial property transactions involving directors. That way, you can identify which<a href=\"https:\/\/legalvision.co.uk\/corporations\/substantial-property-transaction-directors\/\">Continue reading <span class=\"sr-only\">&#8220;What is a Substantial Property Transaction Involving Directors in the UK?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13522,"featured_media":3257,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"179970,179403,177946,178457,178198,176167","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[28],"tags":[773,842,1325,1349],"class_list":["post-180998","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","tag-directors","tag-general-meeting","tag-substantial-property-transaction","tag-shareholder-approval"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What is a Substantial Property Transaction with Directors? 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