THE CLOSE CORPORATION IN CONTEMPORARY BUSINESS

The term or closely held has no clearly defined meaning in the law of the various American jurisdictions. Lacking a statutory definition, such as is available for the British private company and for its French and German counterparts, the courts and the writers have fashioned their own, with varying consequences. None of the definitions in current usage are satisfactory. Of the two most commonly employed, one resorts to contrast with a corporation whose shares are publicly held and by exclusion returns to a corporation whose shares are not publicly held. By inference, we are left with a corporation whose shares are in relatively few hands. This definition adds little to the term and is difficult to apply for practical purposes. The second definition is possibly little more satisfactory in application but at least carries more content as to the character of a close corporation. This definition, which is adopted for present purposes and reduced to the simplest terms, is a corporation in which ownership and management are in the same hands. From this it follows that ownership is vested in relatively few persons, natural or corporate, and that transfers of shares occur but rarely. Each of the 52 American jurisdictions has its own more or less comprehensive corporation statutes. Each of these, with the exception of the nine jurisdictions that have recently adopted in substance the Model Act prepared by the Committee on Corporate Laws of the Section of Corporation, Banking and Business Law of the American Bar Association, varies substantially from the others. Consequently, generalization on any phase of corporate law contained in this discussion must be understood as representing primarily the rule followed in a majority of those states where corporate activity is of most significance. The close corporation is probably the most prevalent form of business entity in use in the United States. It is employed for small businesses, family enterprises, farming, transfers of property among members of a family for tax avoidance, and for countless other purposes and in a myriad of circumstances. It is probably the only form of corpora-