A close corporation, often called a closely-held corporation or a small corporation, is a specific type of corporate structure designed for businesses with a limited number of shareholders. Unlike public corporations whose shares are traded on stock exchanges, close corporations typically have shares owned by family members, friends, or a small group of investors. This structure offers many of the liability protections of a traditional corporation while allowing for more flexibility in management and operation, mimicking some aspects of partnerships or LLCs. Understanding the distinctions and requirements is crucial for entrepreneurs seeking a suitable business entity. State laws vary significantly regarding the definition and regulations of close corporations. Some states have specific statutes for close corporations, while others allow existing corporate statutes to be modified through shareholder agreements to achieve similar results. Key characteristics often include a small, defined group of shareholders, restrictions on share transfers, and simplified management structures. This makes them an attractive option for family businesses, startups with a few co-founders, or ventures where the owners want direct control and operational ease without the complexities of a large public company.
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