History Lesson: The Close Corporation

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When corporations were first introduced in Delaware in 1875, you had to have at least three people working together to form a corporation. The whole idea of a single person corporation was not even envisioned by the early lawmakers. But entrepreneurs demanded control so they would include their lawyer and perhaps a secretary to be the stand-in shareholders to meet the requirement.

The law was also very strict about the separation between the three tiers of power in a corporation: the Shareholders, the Directors and the Officers. It was unthinkable that one person could be all three all at once. Every year the company would have to have a Shareholders’ meeting, with a few Board of Director’s meetings throughout the year, to direct the Officers of the company on the day-to-day affairs.

Delaware, as usual, was the first state to respond to this need for control, desire to own, run, and operate a company by a single person or a small tight-knit group. This is the “Close” or “Closely Held Company."

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