Close Corporation Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Close Corporation, written in plain English, along with examples of how it is used.

What is Close Corporation?

It is a business which is owned and managed by a small group of people or family members but the shares are not issued to public at large.These people are responsible for the management of the day to day affairs of the company.

History and Meaning of Close Corporation

A close corporation is a type of business where a small group of individuals, usually family members or close friends, own and manage the company. Unlike in public corporations, shares of a close corporation are not available to the general public, which allows for more control and flexibility in decision-making. Close corporations are often used in family-owned businesses or small startups where the owners want to maintain control over the company's direction.

The term "close corporation" first gained legal recognition in the United States in the early 20th century. Prior to this, any corporation was considered open to the public, and shareholders could freely buy and sell stock in the company. However, a number of states began to create laws that allowed businesses to restrict stock sales, leading to the creation of close corporations. Today, many countries around the world have similar legal structures for these types of businesses.

Examples of Close Corporation

  1. A group of siblings inherit their parents' business and decide to form a close corporation to manage it together.
  2. A startup company with three founders creates a close corporation to ensure each founder has an equal say in decision making and ownership.
  3. A family-owned restaurant incorporates as a close corporation to limit outside ownership and control.

Legal Terms Similar to Close Corporation

  1. Private Limited Company - A type of legal entity in which the shareholders have limited liability, and shares are not publicly traded.
  2. Limited Liability Company (LLC) - A business structure that combines the liability protection of a corporation with the flexibility and tax benefits of a partnership.
  3. Sole Proprietorship - A business in which an individual is responsible for all aspects of the business, including debts and liabilities.