What is a close corporation?

A close corporation is defined as a business entity that is owned by a small group of shareholders, typically consisting of family members or a few trusted associates. This type of corporation often has restrictions on the transfer of shares, which means that existing shareholders usually have the right of first refusal before any shares can be sold to outsiders. This structure allows for a more intimate and direct control over the business’s operations, as decision-making can be executed without the complexities often associated with larger, publicly-held corporations.

In contrast to large groups of shareholders or publicly traded entities, a close corporation's size and ownership structure allows for greater flexibility and efficiency in management and decision-making. Nonprofit organizations differ fundamentally in their purpose, as they do not operate for profit but rather to serve a social cause or mission, making them unrelated to the concept of a close corporation. Thus, the definition of a close corporation aligns clearly with the concept of being owned by a small group of shareholders.