Simple English definitions for legal terms
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A closely held corporation is a type of company that is owned by a small group of people, usually family members. The shares of this company are not sold on the stock market. The owners of a closely held corporation have a special duty to be fair and honest with each other. This means they should not do anything that would harm the other owners. Sometimes, the owners of a closely held corporation have rules about how shares can be sold or transferred. If a minority owner feels they have been treated unfairly, they can take legal action against the other owners.
A closely held corporation is a type of company that is owned by a small group of people, usually family members or close friends. Unlike other corporations, the shares of a closely held corporation are not traded on the stock market. This means that the owners have more control over the company and its decisions.
Because there are only a few owners, the actions of each shareholder can have a big impact on the company. This is why shareholders in a closely held corporation have a special duty to act in good faith and not harm the other shareholders. For example, if a shareholder sells their shares for personal gain, knowing that it will hurt the company and the other shareholders, they could be breaking this duty.
Transferring ownership of a closely held corporation is also different from other companies. The owners often have agreements in place that restrict how and to whom shares can be sold or transferred. This helps keep ownership within the select group of people who started the company or are close to them.
If a minority shareholder in a closely held corporation feels that another shareholder has harmed them or the company, they can file a direct lawsuit against that shareholder. This is different from other corporations, where such lawsuits are usually brought as a shareholder-derivative suit. This exception is made because in closely held corporations, the majority shareholders may unfairly benefit from derivative suits.
For example, imagine a family starts a closely held corporation together. One of the siblings decides to sell their shares to an outsider, even though they know it will hurt the company and the other siblings. The other siblings could file a direct lawsuit against the sibling who sold their shares, claiming that they breached their duty to act in good faith and not harm the other shareholders.