Continuity of ownership test restricts closely-held companies from aggregating unabsorbed preceding-year losses unless original voting owners remain.

A closely-held company may not aggregate any unabsorbed preceding year loss with current-year income unless it satisfies the continuity of ownership test requiring that the persons beneficially holding shares carrying the requisite voting power at the end of the preceding year remain the holders at the end of the relevant year. For computing voting power, changes due to a shareholder's death or gift to a relative are ignored, and changes from amalgamation or demerger of a foreign company are ignored where the majority shareholders continue in the resulting foreign company.

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