Closely Held Corporations: Are they Real, and Are They Worth It?

You may have heard of someone saying that they have a closely held corporation. And while this may just sound like a descriptive adjective it actually does have a legal meaning, and a closely held corporation is, in some ways, different from a standard corporation.

What is a Closely Held Corporation?

Closely held corporations are those with less than 30 shareholders, and which are run, owned and operated by family members, although not all shareholders have to be family members.

Shareholders may just be unrelated people, all of whom have a common goal or background.

Of the shareholders, more than half of the company shares must be owned by 5 or fewer people.

The shareholders in these corporations are not just passive investors, as they may be in some companies, but rather, have an active role in the day to day operation of the business, and may be officers of the company.

Unlike most companies, closely held corporations may not even have a board of directors that make decisions on the operation of the business, and are not even required to hold meetings the way standard companies are required to do.

Who Would Use Them?

As you may imagine, these kinds of companies can never go public, and they aren’t intended to; they are for companies that want to keep everything “in the family” and where the shareholders also want to work for the business.

These kinds of businesses are good for people who want to make sure that the family business remains a family business, and for people who want to have more control and say over who does what for and on behalf of the business. They can also ensure that a company remains in the family after owners or shareholders pass away.

The business cannot be in a services industry, such as law, accounting, counseling or consulting.

What About Florida Law?

Technically, Florida law does not say what a closely held corporation is or differentiate it from a traditional corporation. The laws that apply to corporations in Florida apply to all corporations, regardless of whether closely held or not.

In fact, Florida’s corporate laws do allow companies ( of any kind, closely held or not) with less than 100 shareholders to eliminate boards of directors or to get rid of other corporate formalities that would otherwise apply.

Is it Worth It?

Many people also feel that the same benefits that are available to the closely held corporation can also be had by simply forming an LLC, which does provide for a lot of flexibility. They can be smaller, with owners who have a hand in the operation of the business.

Others see the closely held corporation as being akin to a (larger) partnership, although legally Florida’ partnership laws do not apply to corporations.

Call the West Palm Beach business litigation lawyers at Pike & Lustig today to see if a closely held corporation is right for you.

Sources:

floridabar.org/the-florida-bar-journal/does-a-florida-minority-shareholder-in-a-closely-held-corporation-owe-a-fiduciary-duty-to-fellow-shareholders/

avemarialaw.edu/wp-content/uploads/2022/02/AMLR.v17.Cook_.final_.pdf