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The IRS defines what constitutes a closely held corporation

A business is just a business, right? That might be the commonly held but mistaken belief of some New Jersey residents. A business can be highly nuanced, and it can be organized in many different and significant ways. Depending upon how a business is set up it can be subject to a variety of different laws and regulations.

This week's post will focus on closely held corporations, and particularly what they are and are not. According to the Internal Revenue Service, a closely held corporation is a business entity that has very few owners. Specifically, in this type of business organization five or fewer people hold at least half of the business's stock and must have done so for the prior half tax year to be given the closely held corporation designation.

Additionally, a closely held corporation cannot be a personal service corporation. Generally, a personal service corporation is one in which the employees own the corporation and perform the services that it provides. There are many other elements of defining a personal service corporation, but those will be explored in a separate post on this Moorestown business law blog.

Depending on the way that a person or group decides to set up a business that entity can be subject to varying tax rules. At the onset of business planning, it can be difficult for a prospective business owner to ensure that he or she is making all of the right considerations before setting up his or her enterprise. For this reason, it can be helpful for those in the business planning stages of starting up corporations to consult with legal advisors on how to structure their entities, protect their business investments and find success in the competitive business market.

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