Legal Definitions - close corporation

A close corporation, also known as a closely held corporation, is a type of business entity characterized by having a limited number of shareholders. Unlike large public companies, its shares are not traded on stock exchanges, meaning ownership is concentrated among a small group, often family members, founders, or a few key individuals.

Because of its concentrated ownership, a close corporation typically enjoys more flexibility in its governance. It can often be managed directly by its shareholders, potentially without the need for a formal board of directors or strict adherence to all the formal rules that govern larger, publicly traded corporations, such as regular annual shareholder meetings with extensive reporting requirements. This structure allows for simpler decision-making and more direct control by the owners.

Examples:

• The "Green Thumb Nursery" is a business owned and operated by a husband and wife, who are its only two shareholders. They make all the decisions about inventory, staffing, and expansion together during their daily operations, without needing to hold formal board meetings or publish financial reports for outside investors. Their shares are not available for purchase by the general public.

  This illustrates a close corporation because ownership is limited to a small number of individuals (the couple), the shares are not publicly traded, and the shareholders directly manage the business with simplified governance.

• "Apex Software Solutions Inc." was founded by three college friends who developed a unique business application. They each own an equal share of the company, and their primary goal is to grow the business while maintaining full control over its direction. They have not offered shares to the public and prefer to make strategic decisions collaboratively during their weekly team meetings rather than through a separate, independent board of directors.

  This illustrates a close corporation because it has a small, defined group of shareholders (the three founders), its shares are not traded on a stock market, and the owners directly oversee its management, benefiting from fewer formal corporate governance requirements.

• "Prestige Medical Group P.C." (Professional Corporation) is owned by five senior physicians who are also the only shareholders. They collectively manage the practice's operations, set its policies, and determine its future direction. The shares of the P.C. are not listed on any stock exchange and can only be transferred among the existing physician-shareholders or other qualified professionals, ensuring that control remains within the founding group.

  This illustrates a close corporation because ownership is restricted to a limited number of professionals, its shares are not publicly traded, and the shareholders themselves are directly involved in the management and decision-making processes, often with a more streamlined corporate structure.