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Might a closely held business be optimal for your enterprise?

| Aug 29, 2017 | Business Formation & Planning |

In the complex and nuanced American commercial world, there are a number of business forms that might be reasonably considered by creative entrepreneurs scouting for the optimal model to guide a start-up enterprise.

And, given that (as we note on our website page addressing business planning and formation at the New Haven law firm of Berdon, Young & Margolis, PC), “Starting out with the wrong organizational structure … can put a real crimp in a new entity’s ability to perform.”

We know that many of our readers in Connecticut and elsewhere know something, or even a great deal, about business forms such as S corporations, limited liability companies, various types of partnerships and sole proprietorships.

It is certainly conceivable, though, that equal knowledge does not extend to so-called “closely held” businesses for many people, owing to their comparative infrequency in the commercial world.

What is a closely held company (sometimes called a closed corporation), and who might be most interested in one as a business model to closely scrutinize?

A centrally defining characteristic of a closely held entity is its relatively small number of shareholders, with that contained group of individuals controlling most company shares and, thus, business operations for the most part. Shares are publicly traded, but only rarely, with the infrequency of trading being attractive to some people for its dampening effect on volatility and company turbulence.

An article on the subject matter notes that, because the parties controlling most of the shares typically maintain their investments for lengthy periods, new investors cannot easily buy a requisite number of shares to effect hostile takeovers or otherwise materially influence the corporate bottom line.

Comparative and sustained price stability is often a key feature of closely held companies, given the lack of material upticks and plunges that accompany enterprises with a high number of outside investors.

Volatility makes for opportunity too, though, and closely held companies are sometimes denigrated for their inability to raise capital and forge material changes in company operations/policies as easily as do companies that have no limits on public trading.

A proven business lawyer can provide further information on closely held business entities and other company formats, helping a client choose the optimal organization structure to produce long-term success.