Learning Center, Starting Your Business

Close Corporation and its Advantages

What is a Close Corporation?

Unlike a public company, a close corporation is controlled by a few people who own all the voting stock and interest in the company. It is a type of shareholder company in which it is impossible for any partner to sell or transfer its shares without the approval of other shareholders. Unlike other shareholder companies, the management of the company is carried out by the shareholders and not by the board of directors. They are usually small-scale family businesses.

Advantages of a Close Corporation

There are several advantages of close corporations. As the voting stock is in control of a limited number of shareholders, the process of managing the overall operation is often much more simplistic. Individuals who have control of a private company tend to be closely involved with the day to day operations, thus, there is no giant gap between the goals. Another benefit of private companies is that it is easier to reach a consensus on the issues facing the corporation. Since the control of the close corporation is in the hands of a few selected people, it is much easier to discuss how to best position the company for future performance. Generally, there may be a large number of temporary discussions between shareholders before any formal action is taken. This results in formal business meetings that can be held with minimum frustration and without spending too much time to plan and execute an action plan.

Close Corporations remain one of the most common business models in the United States and many other countries. Since private companies are relatively easy to set up and it is absolutely easy to manage the closed company by keeping financial interests limited to a few outstanding people, this model is quite attractive for entrepreneurs in many different areas.

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