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The closely held corporation, and why it can be beneficial

On Behalf of | Jul 5, 2016 | Business Litigation

As most people are aware, businesses can either be public or private in nature. When a company goes public, they open up shares for sale that anyone can purchase. This can be very beneficial to a company’s growth and bottom line, but it can also present problems. That’s why some companies choose to utilize the “closely held corporation” approach to their company.

A closely held corporation is a public company by name, but in actuality it is limited to a few investors that control the company. Occasionally the closely held corporation will offer up a small amount of stock to the public, which can then be bought by anyone. In order to be considered a closely held corporation, it is a requirement that a certain percentage of the shares of the company be owned by the public.

Even though there may be minority ownership groups of a closely held corporation, the majority ownership group will likely hold onto their position as the leader of the company for years and years. Closely held corporations promote stability and foster longevity in this way. Of course, this can cause problems of its own (such as disagreements and arguments among a very consistent group of owners), but the stability that this arrangement grants is very beneficial.

Closely held corporations are quite resistant to hostile takeovers and dramatic shifts in ownership as a result of this stability. It may be a bit of a unique approach to shareholders, but the closely held corporation can be an extremely helpful structure for a business.