History Lesson: The Close Corporation

When corporations were first introduced in Delaware in 1875, you had to have at least three people working together to form a corporation. The whole idea of a single person corporation was not even envisioned by the early lawmakers. But entrepreneurs demanded control so they would include their lawyer and perhaps a secretary to be the stand-in shareholders to meet the requirement.

The law was also very strict about the separation between the three tiers of power in a corporation: the Shareholders, the Directors and the Officers. It was unthinkable that one person could be all three all at once. Every year the company would have to have a Shareholders’ meeting, with a few Board of Director’s meetings throughout the year, to direct the Officers of the company on the day-to-day affairs.

Delaware, as usual, was the first state to respond to this need for control, desire to own, run and operate a company by a single person or a small tight-knit group by passing legislation allowing a company structure where the shareholders run the company with no directors at all. This is the “Close” or “Closely Held Company”.

This blog category will help you understand all the benefits of a Close Corporation as time goes on. We invite you to join the conversation by leaving a question or comment.