What Is a Close Corporation?

A close, or "closely held," corporation is a type of venture where the shareholders, directors and officers are typically the same people, and where all parties desire to remain a small, tight-knit group. Close corporations are restricted to no more than 30 shareholders.

A close corporation may be structured and run like a partnership with regard to management, division of profits, election of officers, employment of shareholders and other aspects—all with the legal protection of a corporation.

Additionally, restrictions on the sale, transfer or disposition of stock may be written into the bylaws of a close corporation, and shareholders always have the contractual "right of first refusal" to buy shares before any third-party if a fellow stockholder decides to sell.

In extreme cases, where the shareholders of a close corporation are deadlocked and unable to effectively manage the company, the Delaware Court of Chancery may be petitioned by the corporation's directors or shareholders to appoint an impartial provisional director

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Key Elements of a Close Corporation

Close Corporations are Frequently Used For:

 

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