Some Limitations and Restrictions
Closely held corporations, sometimes called close corps, are companies controlled by a small number of shareholders. In most cases, the original investors maintain control of their shares for the long-term, with little interest in selling shares or relinquishing any powers.
“Closely held” is defined by the IRS as a corporation that has more than 50 percent of its outstanding stock owned by five or less individuals. The very nature of closely held corporations is centered on controlling power, but this power comes with some limitations and restrictions.
Restrictions on Closely Held Corporations
While shareholders of a closely held corporation enjoy an exclusive hold on authority, they can also find it difficult to procure the services and talent needed for daily operations.
As with any company, closely held corporations will require high-level expertise in the fields of management, accountancy, financial planning and general advisory services. Often times, these skills will need to be acquired from outside sources.
The external procurement of consultancy services presents issues for both sides. Members of the closely held corporation are reluctant to give up powers, while qualified candidates are hesitant to commit to the dynamics of close corporations.
External directors operating within closely held corporations suffer from liabilities not applicable to their internal counterparts, such as: taxation, regulations and wage disputes.
At Lee Shome & Kennedy, LLP in San Diego, we specialize in creating agreed upon solutions that bridge the gap between both parties. Our solutions driven approach allows shareholders and their external counterparts to create mutually beneficial relationships.
With respect to closely held corporations we propose the establishment of an advisory board to act as mediator of responsibilities.
Advisory Board as External Consultant
The establishment of an advisory board can include provisions set forth by the entrepreneurs and their closely held shareholders. Without the fear of diluting their powers, company directors are able to work with outside sources in accomplishing their specific mandates. Acting as a mediator of sorts, the advisory board is also able to ease the concerns of the professionals joining the team.
In the majority of cases, advisory boards prove to be beneficial in terms of cost and operations.
Since closely held corporations are governed by more complex regulations, further evaluation will be required. After analyzing your company structure, we may find it necessary to adopt a charter for the advisory board. Nevertheless, it’s important to take into account the particulars involved, the concerns of all parties involved, as well as the desired end goals.
At LSK, in San Diego, we provide a free 30 minute consultation for anyone interested in forming a corporate entity.
With Lee, Shome & Kennedy, LLP, your solution starts here.