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What is a closely held corporation?

On Behalf of | Jul 7, 2016 | Closely Held Businesses |

For those who are shareholders of a company or are particularly involved in the world of buying and selling stocks, the phrase “closely held corporation” isn’t exactly stunning. But many people don’t know what such a business is, so today let’s talk about closely held corporations.

A closely held corporation is a company that is publicly traded, but only ever so often. The shareholders in a closely held business are limited, and the availability of stocks or shares in the company is also limited. Private companies obviously don’t open themselves up to public investment, thus offering shares in a private manner.

Even though the business has a limited number of shareholders, in order to qualify as a closely held corporation, the business must have a certain percentage of the shares available for the company and a certain percentage must be held by people outside of the company. Usually in these types of companies, the majority shareholder (or shareholders) rarely relinquish their control because of the limited nature of shares being made available to investors (may they be traditional or otherwise).

Closely held corporations are often very stable, considering the limited nature of the company – but it can make the business ripe for potential problems and disagreements between shareholders. With little changing throughout the life of a closely held corporation, it is only natural that disagreements and disputes will arise. It is in these difficult situations that the company needs to foster positive working relationships and sound legal counsel to ensure that the closely held business continues to thrive into the future.

Source: Investopedia, “What is a ‘Closely Held Corporation’,” Accessed July 5, 2016