A close corporation, also known as a closely held corporation, is a business entity characterized by a small number of shareholders, no public market for its shares, and often involves active management by the shareholders.
It's designed to operate more informally than a publicly traded company, with fewer corporate formalities.
The structure of a close corporation allows for more direct management by its owners, who are typically involved in the day-to-day operations of the business. It provides the limited liability features of a corporation while allowing for a more personal management style, similar to a partnership. Regulations governing close corporations vary by jurisdiction but often permit the omission of a formal board of directors and relaxed requirements for shareholder meetings.
Small Business Law: Close corporations are a popular structure for family-owned businesses or small enterprises, offering a blend of corporate protection and operational flexibility.
Estate Planning: Ownership in a close corporation may be integral to estate planning and succession planning for family businesses.
One misconception is that a close corporation is necessarily small in terms of revenue or assets.
While many are small businesses, the term "close" refers to the ownership structure rather than the size of the business. Another misunderstanding is that close corporations are exempt from all traditional corporate governance rules. While they have more flexibility, there are still legal requirements and regulations that they must follow.
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