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Closely Held Corporation Questions

Closely held corporations make up the majority of business. This type of corporation is usually ran by a small group of people or a family that doesn't have a market for the shares, therefore the shares stay within the company. Closely held corporations do have advantages in that they can make company changing decisions at a faster rate than a publicly traded company. Below are a few of the more commonly asked questions about closely held corporations.

I own 33.3% shares in closely held corporation. Another two partners own also 33.3% shares each. Now they have (by majority decision) dismissed me from employment. Therefore they are bypassing our partnership agreement by denying me equal distribution of total profits and dismissed me from company management. What should I do to get equal distribution of profit and get back to day to day management?

Generally, when there is a majority vote such as this, there may be little that you can do if the vote doesn't violate the company's bylaws. With the partners holding 2/3 of the vote, they can decide who is in charge of day to day operations of the company. You need to read your company by laws and determine if they are within their rights to make such decisions. However, with a majority rule, if they are not in violation of the partnership agreement, your options may be limited. You could always take the two partners to court on a shareholder suit in an attempt to seek relief from their actions as current board members. This will probably be a tough case to take to court because with the partners ruling a majority vote, the court may decide that the majority vote was for the best interest of the company. If this option doesn't appeal to you, you could always let the partners buy your shares and leave the company. However, you may want to get an accurate accounting of the funds in the company in order to receive a fair share of the company. You may also want to argue how the partners have chosen to fatten their salaries.

I am selling my insurance agency (closely held C Corp). From what I understand I need two contracts for the sale. One for personal goodwill and another for non- compete and the hard assets (furniture, computers, business goodwill). I live in the south and am curious what a fair price is for the contracts? Is $4000 too much for the contracts?

$4,000 does seem to be a high price to prepare contracts considering that you are not in an area with a more prominent market, like New York. You may try to have the attorney lower the price since the contracts are rather easy to prepare. You may be able to save some money by listing your assets on an exhibit within the contract.

You may want to consider selling your corporations stocks. By doing this, the buy would take the assets as well as any liability of the business. When you have an asset sale, all liabilities remain with the corporation while the buyer takes the assets. It would be a better arrangement for you to have a C-corp. sale and rid yourself of all liability along with the assets.

I am selling a business that is registered as a closely held C corporation in the state of Minnesota. What is the best approach when selling the assets? What are the tax liabilities for share holders?

To avoid any undo accusations of preferences between the shareholders, you may want to consider using an auction service to sell the corporations assets. This will keep you from being responsible for the amount that is made through the sale. The auctioneer will be a neutral party in the sale and there shouldn't be any upset as far as how the assets are sold. Once the sale is completed, you can pay the shareholders based on their ownership interest.

There may not be any liability of taxes for the corporation because you probably won't receive a net income from the sale. This will also apply to the shareholders who will probably have a capital loss due to not receiving what they originally gave for their shares. Once you have filed the final dissolution paperwork through the state, what money is left should be given to the shareholders. This should take care of all the loose ends of the company and shareholders.

Under Virginia state law, if a trustee of a trust consisting of voting shares in a closely-held corporation were to use their position as trustee to have themselves installed as president of that closely-held corporation, would this run afoul of the prohibitions against self dealing for fiduciaries?

In order for there to be a fiduciary conflict, there would have to be a conflict of interest, and in this situation, that doesn't seem to be the case. The surviving spouse would be the only one with any interest at this point; therefore there shouldn't be a conflict. There doesn't seem to be anything that would prevent the spouse/trustee from voting herself as president of the corporation.

Do you think that a closely held corporation will work for you but have doubts and unanswered legal questions? When you have legal questions, it's best to seek legal insight from Experts.
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