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Closely Held Businesses

Closely held businesses are comprising a greater share of the business community than ever before. Close corporations, another term for closely held businesses, are companies with a small number of shareholders. By statute, any corporation with fewer than thirty-five (35) shareholders is a close corporation, although there are common law tests that still apply to some corporations. Because of the few shareholders, the principal owners exercise direct management prerogatives over the company. Closely held businesses can run into unique management obstacles because of the tight relationship of the shareholders.

Majority owners of close corporations hold a great degree of power over the operations. The shareholders can appoint the board of directors and hire management and employees. The shareholders can assume the direction and management of a close corporation. Minority shareholder interests might not receive sufficient representation in close corporations. Detailed business planning can protect the rights of minority.

Although closely held businesses can operate more flexibly than corporations that have many shareholders, the freedom can generate legal problems for the business and shareholders. When the law does not permit close corporations greater procedural and accounting freedom, directors and shareholders can become personally liable if the close corporation neglects statutory requirements. The informality of closely held businesses can cause dissent and impasse among directors. If the business becomes inoperable, dissolution might be the only solution to perpetual disagreement.

Patrick K. Oden, a Minneapolis business lawyer, can help develop a business plan that addresses these issues.

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