• July 2019
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Closely Held Corporation

A Closely Held Corporation, also known as a closed corporation in some circles, is a corporation where five people or less own more than 50% of the corporation’s outstanding stock. The company must also not be involved in the personal service industry.

In a closely held corporation, stock is publicly traded but not often. This is not a private company in which no stock is offered.

Even though the corporation’s stock is listed on the stock exchange, a closely held corporation’s stock activity mostly happens between the major shareholders. Often times, the stock is held by family members associated with the company.

Closely held corporations do not receive the same tax breaks as those with actively traded stocks do.

Because the stock isn’t being traded regularly, the shareholders are holding onto their  investments for the long term, which means there is little to no chance for a new investor to come in and get a controlling stake in the business. Only small batches of stock become available for trade with a closely held corporation. This also prevents hostile takeovers, meaning the closely held corporation will be able to maintain complete control over its business operations.

Since shares aren’t being traded very often, the price of closely held corporations’ stock generally stays pretty much the same over longer periods of time with little influence from the often-erratic market surrounding it. This shield the business from the whims of unpredictable investors but it also makes it a lot more difficult to raise capital by selling stock.

 

EXAMPLE:

I’d love to get a chance to do a hostile takeover of that company, but it’s such a closely held corporation that no one can touch them.