Closely Held Corporations - Explained
What does it mean to be closely held?
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What is a closely-held corporation?
A closely-held corporation is owned and controlled by a small group of owners or shareholders. These shareholders hold the shares of stock necessary to elect most or all of the directors. Often, shareholders in a closely-held corporation will elect themselves to serve as directors and appoint themselves as officers. Family-owned businesses commonly organize as closely-held corporations. In these entities, members of a single family own most or all of the outstanding shares. They also serve as directors and officers of the business.
Shareholders generally have limited fiduciary duties to the corporation. With a single or small group of shareholders holding a majority of the voting shares in the corporation, minority shareholders rarely have much influence in the corporation. In such instances, common law generally holds that majority shareholders have fiduciary duties to exercise care and loyalty with regard to the corporation. This is particularly true in closely-held entities. Given the difficulty of enforcing ones rights, these standards offer little protection to the minority shareholder.
- Note: In some situations, minority shareholders may be able to bring a direct action against the corporation if their individual rights are harmed. Further, they may be able to bring a derivative action on behalf of the corporation against majority shareholders who fail to exercise care and loyalty in carrying out their corporate duties. In such actions, the court may assess damages against the majority shareholders or issue injunctions to halt the harmful conduct.
Next Article: The Difference between Public and Private Companies Back to: CORPORATE GOVERNANCE
Do you believe that closely-held corporations should be governed or subject to the same governance requirements as widely-held or public corporations? Why or why not? Does the close connection between shareholders and the business entity affect your opinion? Why or why not?
Can you identify the most profitable or heavily-capitalized, closely-held corporations in the United States?
- A closely held corporation refers to a corporation that has a limited number of shareholders. These are often private companies and their shares do not trade publically. One such company in the United States is the Hobby Lobby. This is a retail company which has its headquarters based in Oklahoma, with branches in almost all the States. As of the year 2016, the company had revenue of 4.3 billion Dollars and a recorded number of over 30,000 employees. Another such company is Cargill which is also a large private company-closely held corporation based in the United States.
- Corporate Governance Law (Intro)
- What is Business Governance?
- Berle-Means Thesis
- Corporate Governance Rating Definition
- Who are the members of a corporation?
- Corporate Charter
- Shareholder Register
- Common Stock
- Preferred Stock
- Par Value
- Authorized Shares
- Issued Shares of Stock
- Unissued Shares of Stock
- Outstanding Shares
- Institutional Shares
- Dual Class Shares
- What is a closely-held corporation?
- Close Corporation Plan Definition
- What is a Private Company vs a Public Company?
- What is the role and purpose of the corporation?
- What is the Agency theory of corporate governance?
- Shareholder-Centric Perspective
- Shareholder Value
What is the Stakeholder theory of corporate governance?
What is the role & rights of Shareholders in the corporation?
- Shareholder Democracy Definition
- Quorum Definition
- Information Circular
- Straight and Cumulative Voting
- Cumulative Voting
- Plurality Voting
- Class Voting Shareholders
- Changing the Voting Rules
- Supermajority (Voting)
- Shareholder Sponsored Proposal
- What are the variations on attributes of Ownership structure?
- Stock Split
- What are the fiduciary duties owed by shareholders?
- When is a shareholder personally liable for corporate obligations?
- Appraisal Rights
- Dissenter's Rights
- Say on Pay Rights
- How can shareholder enforce their rights (direct and derivative actions)?
- What is the process for bringing a Derivative action?
- What are corporate vote Proxies?
- Proxy Statement
- Proxy Fight or Contest Definition & Explanation
- What is Shareholder Activism and the significance of Institutional Investors?
- Activist Investor
- Overview of Board of Directors
- Board Decision Making
- Advisory Board (Observer Directors)
- What is the role of the Board of Directors?
- Board of Trustees
- Board of Governors
- What is the composition of the board of directors?
- Chairman of the Board
- CEO as Chairman of the Board
- Outside Director
- Outside Director or Non-Executive Director Definition
- Independent Outside Director
- Budget Committee
- Audit Committee
- Compensation Committee
- Nomination Committee (Corporate Board)
- What standards govern the actions of the board of directors?
- Duty of Candor Definition
- Duty of Care (Board of Directors)
- Duty of Loyalty (Directors)
- Board Evaluation Definition
- What is the Business Judgment Rule?
- What is D&O insurance?
- Codetermination (Foreign)
- What is the role of Managers of the corporation?
- What standards govern manager actions?
- Chief Executive Officer (CEO)
- Chief Financial Officer
- Chief Information Officer (CIO)
- Chief Investment Officer (CIO)
- Chief Legal Officer
- Chief Operating Officer
- Chief Risk Officer
- Chief Security Officer
- Chief Technology Officer (CTO)
- What are the primary state and federal corporate governance laws?
- What is the role of the state in corporate governance?
- What is the role of Securities Laws in corporate governance?
- What is the role of the Foreign Corrupt Practices Act in corporate governance?
- What is the Sarbanes-Oxley Act (SOX) effect on corporate governance?
- Sarbanes-Oxley Act (SOX)
- What is the Dodd-Frank Wall Street Reform and Consumer Protection Act effect on corporate governance?
- Corporate Monitors
- What industry organization standards affect corporate governance?
- How do proxy advisory firms affect corporate governance?
- What is the role of ethics in corporate governance?
- What are the major causes of corporate governance issues?
- What are the access to information issues?
- What are decision-making structure issues?
- What are the power struggle or competition issues?
- Holding Company
- What are hostile takeovers and defenses to hostile takeovers?
- Williams Act
- Staggered Board
- Shark Repellent Defenses?
- Poison Pill Defenses?
- Flip Over Poison Pill Definition
Flip In Poison Pill Definition
- Voting Poison Pill Plan
- Delay-Tactic Defenses?
- Legal Lockup Defenses?
- White Knight and Pac Man Defenses?
- Jonestown Defense
- Lady Macbeth Strategy
- Macaroni Defense
- Yellow Knight
- Back-end Plan Definition
- Backflip Takeover Definition
- Dead Hand Provision Definition
- Kamikaze Defense
- Operating Company Property Company Model
- Scorched Earth Policy Definition
- Revlon Rule
- What are benefit-alignment issues?
- Cadbury Rules Definition