closed corporation

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Closed corporation

A corporation whose shares are owned by just a few people, having no public market.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

closed corporation

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
(52) In these situations, particularly in closely held corporations, where the mere presence of a disinterested director will not overcome strict dominance, the legal decision to run the statute of limitations should not depend on such a singular presence.
Passive Activity Losses for Closely Held Corporations
A fair market value analysis determines the value of closely held corporation shares by asking what someone would hypothetically pay for those shares.
''It's the first time that our court has said that a closely held corporation has the rights of a person when it comes to religious freedom.''
A closely held corporation may use equity-based incentives to recruit a talented executive to its management ranks, to compensate an executive for her management services, or to align the executive's interests with those of the corporation's shareholders.
Fortunately, many states have enacted laws that relax nonessential governance requirements for closely held corporations. Such laws permit operation without a board of directors, broad use of shareholder agreements, waiver of annual meetings, and execution of documents by a single person acting in more than one capacity, such as chairman of the board and president.
According to Donahue, most closely held corporations are "really like partnerships, between two or three people who contribute capital, skills, experience and labor." (20) In the court's opinion, the relationship among the stockholders in a close corporation is just like that of partners in a partnership; meaning that if the enterprise is to succeed, then the relationship must be one of "trust, confidence and absolute loyalty." (21)
Taxpayers should be sure to provide evidence of stock valuation in closely held corporations based on the worth of the underlying property.
Generally speaking, for tax related matters, the standard of value for closely held corporations is fair market value.
Defining this minimum degree of control has been particularly difficult in cases involving employee-shareholders of closely held corporations.
It is not unusual for small, closely held corporations to secure their initial capital entirely from a bank or other third-party financing, secured by the shareholders' personal guarantees.