close corporation

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Related to close corporation: Private company

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.

close corporation

A corporation comprised of a small number of individuals who contribute to the success of the business operations. Also called closely held corporation. Stock in close corporations is typically sale-restricted, so that shares must be first offered to the corporation or to the other shareholders before they can be sold to outsiders.Sale restrictions must be noted on the face of stock certificates, putting buyers on notice that an attempted sale may be void if all requirements have not been met.

References in periodicals archive ?
This paper will analyze the use of the oppression action by minority shareholders in close corporations, minority shareholders in public corporations, debtholders, lenders, trade creditors, contract counterparties, involuntary creditors, employees, and the corporation itself.
For example, in considering whether to disregard the direct-derivative distinction for a shareholder suit in the close corporation, the absence of harm to creditors is an important consideration in allowing a minority holder to maintain as a direct action a suit that customarily must be brought on behalf of the corporation as a derivative suit.
W]e hold that stockholders in the close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another.
A corporation does not have to be incorporated as a statutory close corporation for shareholders to owe fiduciary duties.
In the case of a close corporation, there is a lack of an organized market for the trade of the shares (37).
In order to receive favorable taxation, the statutory close corporation can decide whether to be taxed under subchapter C or subchapter S of the IRS code.
Moll, Shareholder Oppression and "Fair Value": Of Discounts, Dates, and Dastardly Deeds in the Close Corporation, 54 DUKE L.
2005) (noting early close corporation litigation grew from inflexibility of corporate statutes aimed at large corporations); Note, Statutory Assistance for Closely Held Corporations, 71 HARV.
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.
952 Court proceeding by shareholder in close corporation.
According to the IRS, "the cumulative effect of the retained powers and the rights flowing from the shares not placed in trust leaves the grantor in control of a close corporation and assures control for his lifetime.