Closely Held Corporations
Information regarding Closely Held Corporations and closely held corporate structures is provided in the following subsections:
Closely-held corporations are corporations in which shares are held by one shareholder or a closely-knit group of shareholders. The majority shareholders participate in the management, direction and operations of the corporation.
There are various advantages to having a closely held corporate structure including continuity of existence, limited liability, and extent of ownership participation in management. Small, closely held corporations can often make company-changing decisions rapidly.
The differences between closely held corporations and public corporations arise primarily from the fact that closely held corporations are usually managed by the same group of people who bear the ownership risk in the corporation.
In the closely held corporate structure, owners invest, in part, with the expectation that they will participate in the management of the corporation. Closely held corporations may be a subsidiary of another corporation (its parent company), which may in itself be either a closely held or a public corporation.
An important taxpayer benefit is the reduced tax rate on dividends as an owner/employee of a closely held corporation. With the reduction in tax rates on dividends, closely held corporations will distribute a greater portion of their profits as a dividend rather than as a bonus. By distributing a larger portion of its profits as a dividend it can take advantage of the lower corporate income tax rates for taxable income under $75,000 and can reduce its payroll taxes.