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 ?
One of the advantages of a closely-held corporation electing S status upon formation is the elimination of the double taxation of earnings.
The corporate reorganization provisions are quite complex and beyond the scope of this article, but it is pertinent to note that if various requirements are met, owners of a closely-held corporation may be able to sell it in a tax-free transaction.
Two key factors in the sale of a closely-held corporation are: determining its value and structuring the sale in a manner suitable both for the buyer and for the seller.
This tax structure clearly contrasts with the sale of assets where the seller corporation is taxed on the business sale and the closely-held corporation shareholder is also taxed on the distribution of the business sale proceeds.
Sam has a basis of $1,000,000 in his stock in this closely-held corporation.
The third common alternative transaction structure regarding the sale of a closely-held corporation involves a stock sale that is treated as an asset sale under the Section 338 election.
When a closely-held corporation is sold, the seller will typically want a sale of stock structure, because there will only be one level of income tax to pay on the sale transaction.
This leaves Sam Seller with $6,760,000 as the net proceeds of the closely-held corporation sale.