A closely held corporation has a number of advantages and disadvantages for the small business owner. But is it the right structure for your business? Show
Although incorporated small businesses are often referred to as closely held corporations, the term isn't a legal one. A corporation is considered to be closely held if it has a small number of shareholders, or owners, as compared to a widely held corporation, which has a large number of shareholders. Closely Held Corporation vs. Publicly Held CorporationClosely held corporations are private corporations, which means that their shares are not listed on public stock exchanges. As mentioned above, there is no standard legal definition of a closely held corporation, although the term itself may be defined in various state and federal statutes. A publicly held corporation, on the other hand, has shares available for sale on different public stock exchanges. Because of this, the shares of a publicly held corporation can be purchased by any individual interested in investing in the company. Advantages of a Closely Held CorporationThe nature of a closely held corporation offers several advantages, including:
Disadvantages of a Closely Held CorporationDespite the above benefits, a closely held corporation also has some drawbacks, including:
Taxation of a Closely Held CorporationLike any other corporate entity, if a closely held corporation meets IRS conditions for S corporation status, it can elect to be taxed as an S corp. by filing Election by a Small Business Corporation (Form 2553). If you do not make this election, the corporation is taxed as a C corporation. However, it's important to note that the IRS does offer a definition of a closely held corporation: a corporation, that is not a personal service corporation, where five or fewer individuals own more than 50 percent of its shares. While not a standard legal definition, it does set out the criteria the IRS uses to assess whether it considers your corporation to be closely held or not.
Taxation as a C corp. also requires you to consider how you distribute income from your corporation, such as through dividends. However, dividends from closely held corporations often come with double taxation issues, as corporations cannot take a deduction for dividends, which are also taxed at the shareholder level. For the small business owner, there are many advantages of being a closely held corporation, including the ability to exercise greater control over the corporation's management. There are also, however, a number of disadvantages. As you embark on the process of forming your new company, a careful assessment of these pros and cons can prove beneficial. What type of company has stock that is widely held in available for sale to general public quizlet?An S corporation has stock that is widely held and available for sale to the general public.
Which type of company sells shares to the public?What Is a 'Listed' Company? A company is described as listed if its stock shares can be bought and sold through a public stock exchange such as the New York Stock Exchange (NYSE).
What is a widely held stock?A closely-held stock is a circumstance wherein a company's common shares are predominantly owned by one individual owner or by a small group of controlling stockholders. This is in contrast to a widely held stock, in which thousands or even millions of different investors may own shares in a large company.
What type of business sells its stock openly to anyone?Finance, Chapter 9. |