The Advantages of a Closely Held Corporation
When we think of corporations, we usually think of the massive, multi-national companies traded on the New York Stock Exchange, with skyscraper headquarters and cigar-chomping CEOs. But the vast majority of corporations in the United States are actually closely held corporations, in which a small number of stockholders comprise the ownership of the company.
In closely held corporations, the shares of stock are divided up amongst a few select investors and owners, with the ownership shares rarely changing hands. These shareholders are often closely placed in the company's leadership, and because of their high stake in the company's ownership, they usually have a very direct interest in the company's future.
Advantages Over Publicly Traded Corporations
While publicly traded corporations can raise greater amounts of capital by selling shares of their stock on the open market, closely held corporations have a number of advantages over their larger brethren. These advantages include:
- Rapid change. Unlike larger, publicly traded corporations which rely on the votes of thousands of shareholders, closely held corporations are able to make much quicker adjustments when the need arises.
- Not relying on the market. Publicly traded corporations derive their trading value not only from their actual value, but also through the perception of the market. If the market is doing poorly, no matter how good a product the publicly traded corporation is turning out, the company will likely still suffer. Likewise, the publicly traded corporation is in more direct conflict with its competitors for market shares.
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