Closed Corporation
Categories: Banking, Board of Directors, Company Valuation
Yes, corporations close all the time for a variety of reasons, but we're not talking about why the laundromat by your house shut down. In legal terms, a closed corporation officially refers to a company that decides to operate more like a partnership with its shareholders.
To become a closed corporation, a company must first meet certain state requirements, such as not having more than 30-35 shareholders and not being able to make a public offering of its stock. Usually a smaller business might decide to become a closed corporation to avoid such requirements as having formal annual meetings. However, in this “partnership,” shareholders have a lot more power, such as being able to override the executives’ decisions.
Shareholders also have a high degree of control over other shareholders who might want to sell their shares to “outsiders.” Most closed corporation shareholder agreements state that current shareholders have the right of first refusal for any sale or transfer of shares. Another benefit to being a shareholder in a closed corporation is that your personal liability protection is strong, since the company doesn’t have to follow all the formalities of an “open” corporation and won’t get in trouble if they don’t follow them.
Not all states allow closed corporations. But even if you physically set up your business in North Carolina, for example, you can still incorporate in a state that does allow them such as South Carolina or the “in” place to incorporate, Delaware.
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Finance a la' Shmoop what is bankruptcy well in the old days
this was bankruptcy you'd go to prison if you couldn't pay your bills and [People in prison for bankruptcy]
unfortunately there weren't and still aren't a lot of legal high wage earning
opportunities in prison working your way out of debt on the chain gang wasn't [Prisoners working outside]
really a thing back then so instead the burden would be on your family to pay
back the loan you'd promised to pay back and didn't ugly situation it paved the [Officer knocking on a prisoners family member to pay their debts]
way for some well today bankruptcy has a range of flavors that it comes in but
basically it exists as a legal vehicle to avoid the aforementioned situation a [Bankruptcy van driving]
bankrupt person and/or corporation stands in front of a judge they turn
their pockets inside out with a sad face and the judge then decide who will be [Person opens their pockets inside out in front of a judge]
paid when and how much well how does she decide the order for who gets paid back
when? well, it usually prioritizes employees and vendors owed a paycheck
above banks who have made a loan and under that umbrella all different types
of loans have different priorities if the bankrupt individual owns a home it's [bankrupt individual in his home on the toilet reading a newspaper]
usually sold out from under him and anything left after paying off the
mortgage is used to pay others even if you do survive a bankruptcy your credit
is pretty much ruined who's going to want to loan you money once you've
proven that you're not good with being loaned money yeah if you've defaulted in [a really low credit score chart for a bankrupt individual]
the past on promises to pay people back why wouldn't you do the same thing again
well remember that twenty dollars you loaned your buddy Eric that he never [Person loaning 20 dollars to friend Eric
paid back well how eager are you going to be to hook him up with another twenty
especially since you'd only be feeding his betting on frog fighting habit yeah [Eric betting money on frog fighting]
not so much so long Eric you'll get the help you need!