View random article

What Is a Closed Corporation?

Individuals who have purchased stocks or shares control corporations. Thus, a closed corporation, also known as a private company, is owned by a few people who have all the controlling stocks or shares in that corporation. The usual example of a closed corporation is that of a family corporation or a partnership. As long as the controlling interest of the corporation is limited to a few people, it is considered a closed corporation.

When starting a business, a closed corporation is the model that people usually choose to start with. This is so because start-up owners wish to operate their business according to their rules rather than to answer to others for their actions. Other than this advantage, it is also possibly easier to manage a closed corporation since those with controlling interest are few. Thus, problems and decisions that the closed corporation faces can be resolved by consulting the few who own it rather than hundreds of shareholders of a public corporation. It becomes much more simple to handle operations as well as to involve all the individuals who own stocks or shares.

It is possible for a closed corporation to eventually become a publicly traded corporation. This is done in an effort to sustain the growth the closed corporation may have experienced. When this event occurs, the closed corporation provides stocks or shares for the public to buy. The original shareholders may choose to sell off their stocks, but retain their investment in an effort to gain more profit.

Featured in Finance