8/13/2019 Writing Assignment 9

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Amanda Weiner Writing Assignment #9

When comparing publicly held corporations and closely held corporations, severalimportant distinctions can be made. At the outset, both types seem to serve the same primary

function of carrying out the functions of a corporation. However, the underlying structures ofeach type show much variance, resulting in dissimilarities in their formulation, involvement offiduciary duties, function of shareholders, and more.

Regarding control over the company, more issues certainly arise in publicly heldcorporations rather than closely held corporations. A primary reason for this is due to the factthat publicly held corporations are larger and often have numerous shareholders, thus creatingmore problems as to who has control over the company and how they control. Thesecorporations often involve hierarchies of management, which numerous individuals may

participate in. roblems often arise regarding election proceedings, pro!y fights, etc. "n closelyheld corporations, on the other hand, there are significantly fewer shareholders and less

problems. wnership of the company is not made available to the public, therefore resulting in

fewer shareholders. $iven the small number of shareholders involved, all may be involved in themanagement of the company and therefore are each given some ability to control.%nli&e publicly held corporations, which issue stoc& that is traded on the public mar&et in

order to raise money, closely held corporations do not issue stoc& on the public mar&et.'urthermore, stoc&holders of publicly held corporations can buy and trade stoc& much moreeasier, especially since material information is made available. "n closely held corporations,however, this certainly is not the case. btaining material information in closely heldcorporations is much more difficult. Additionally, since there is no public mar&et, stoc&holdersof closely held corporations cannot simply (get out) of their purchase and trade stoc& as easily.%sually, sales must be done with the notification*approval of the other shareholders.

+ecause publicly held corporations involve a plethora of shareholders, it is crucial that

proper procedures be followed in terms of formal documentation of the company s activities andmore. ublicly held corporations must be registered with the - / and follow - / guidelines./losely held corporations, however, are not re0uired to register and are afforded more leniencewith following proper guidelines. -temming from this, closely held corporations are reviewedmuch less strictly that publicly held corporations given the leniency, fewer shareholdersinvolved, and minimal control issues.

As previously stated, publicly held corporations operate with numerous individuals inmanagerial positions. With so few shareholders in closely held corporations, those individualsare treated and viewed more as partners. Thus, shareholders in closely held corporations owefiduciary duties, must li&e partners in a partnership owe to one another and the company. /asessuch as Clark, Wilkes, and Smith demonstrate that parties in closely held corporations owe eachother a great degree of good faith and loyalty. ('ree1e outs,) which are an issue that may appearin closely held corporations when parties attempt to (&ic& out) another party, are not allowed ifconducted in bad faith and with no legitimate business purpose. See Wilkes .

$iven the various distinctions between publicly and closely held corporations, it is clearhow courts must review cases accordingly, initially and primarily based on the classification ofthe corporations. "t is certainly crucial to note the variations in the formations, duties,obligations, etc. in both types of companies.

8/13/2019 Writing Assignment 9

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