We noted in a recent blog post the stated view of one business principal whose company was bought out by a closely held enterprise that the new ownership platform would better enable him as CEO to make decisions more firmly aligned with the company’s interests.
That individual was contrasting his new reality with what he said previously existed, namely, the regular intrusion of activist investors more focused on short-term profits than on long-term business viability.
“These guys show up, they’re renting the stock and they tell you what to do,” he noted in a business article. “[I]t’s not a positive way to have dialogue.”
Closely held companies do indeed have attributes that can minimize radical business moves over the short term and promote a sense of ongoing stability. They include these characteristics:
- Limited number of shareholders
- Stock that is publicly traded in a relatively controlled manner
- Tendency of shareholders to maintain holdings for an extended period
- Less chance for outsiders taking control, hostile takeovers and decisions that might reap immediate profits but harm an enterprise in future months or years
Although not always being the case, closely held companies are often marked by a controlling number of shares held by family members or other tightly connected individuals, with that reality helping to dampen material business dislocations.
The advisability of opting for a closely held company business model will of course depend on a number of complex and interrelated factors in any given case, as well as on the legal requirements set forth under applicable state laws.
An experienced business and commercial law attorney can provide further information and studied input on all matters relevant to the consideration of a closely held enterprise.