closed corporation

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Closed corporation

A corporation whose shares are owned by just a few people, having no public market.

Closed Corporation

A company in which a small group of shareholders controls the majority of the shares. These majority shareholders tend to hold on to the company's stock, and, for that reason, only minority shares are traded, leading to light trade volume. Closed corporations are, by their nature, resistant to hostile takeovers and proxy wars. They tend to be more stable than other companies because their share prices are not determined by (sometimes irrational) investment decisions, but by the value of the company itself. However, closed corporations do not have access to as much working capital as corporations with more shareholders. They are also called closely held companies.

closed corporation

References in periodicals archive ?
11) While there is no standard set of attributes, certain characteristics distinguish closely held corporations from their publicly traded counterparts.
For the purposes of determining material participation, individuals, estates and trusts are treated differently from closely held corporations and personal service corporations.
To operate under these relaxed rules, some states require that the corporation both qualify as a closely held corporation (typically fewer than 50 shareholders) and elect "statutory close corporate" status.
The IRS has typically applied this asset approach when a closely held corporation functions as a holding company and earnings are relatively low in comparison to the fair market value of the underlying assets.
In third-party transfers involving closely held corporations, the scenario changes.
The first step in the process of valuing a stock interest in a closely held corporation is valuing the entire business.
Establishing a reasonable compensation level is a not a science, especially when it includes a contingent compensation arrangement in a closely held corporation.
These increasingly popular restrictive agreements can be valuable tools to closely held corporations that seek to protect shareholder ownership interests and increase the probability of achieving a long and successful operating life.
Further, transactions involving closely held corporations and their controlling shareholders demand close scrutiny.
The personal holding company (PHC) tax is a punitive tax imposed on certain closely held corporations that retain excess PHC income.
A trend is emerging in reasonable-compensation decisions that should please executives of closely held corporations and clear up some of the murkiness that has clouded this area for years.
Third, the seven-factor test invites the Tax Court to set itself up as a super-personnel department for closely held corporations, a role unsuitable for courts.