Closely held corporation

A closely held or closed CORPORATION is a firm whose COMMON STOCK is owned by only a few individuals (often management) and is not publicly traded. PROPRIETORSHIPs and PARTNERSHIPs that eventually adopt the corporate form of organization often remain as closely held corporations with the original owners as the only stockholders. LEVERAGED BUYOUTs also result in firms being closely held. In contrast are publicly owned corporations, large companies whose stocks are widely owned and are traded publicly. Usually closed corporations and publicly owned corporations are subject to the same state corporation laws. Many states, however, allow closed corporations greater autonomy in the operation of their business affairs than is granted to public corporations. For example, a closely held corporation may be allowed to operate without a BOARD OF DIRECTORS and be managed as if it were a partnership. The Close Corporation Supplement to the MODEL BUSINESS CORPORATION ACT (MBCA) allows SHAREHOLDERS in closely held corporations to have the same dissolution powers as partners in a partnership. Closely held corporations may also institute supermajority voting requirements and restrictions on managerial discretion of the board of directors. Since most closely held corporations involve owner-managers, with some owners having more voting rights than others, sometimes closely held corporations establish rules such as requiring a threefourths majority, unanimous approval to terminate owneremployees, or restricting management from reducing company DIVIDENDs.
See also STOCK MARKET.