Who is in charge of a closely held company?

A young businessman in a suit isolated on a white background A company owned by only a few shareholders or members is often called a closely held company.  These companies are not publicly traded and are often held by families or business partners.  Both a corporation and an LLC may be “closely held.”  The laws of the state of incorporation will dictate precisely which individuals are in charge of the management of the company. 

In Florida, for instance, the Business Corporations Act does not expressly recognize a “closely held” company.  Thus, a closely held corporation is governed by a board of directors, who are elected by the shareholders.  The board of directors then, in turn, appoints any officers as required by the corporation’s bylaws.  That being said, a provision of Florida law (§ 607.0732, Fla. Stat.) allows a corporation with no more than 100 shareholders to execute a “shareholder agreement” to streamline the management of the corporation.  For instance, the shareholders can by agreement: eliminate the board of directors; establish rules for making distributions (within certain limits); assign management roles and responsibilities; and otherwise govern the exercise of corporate business. 

Other states have different rules governing the management of closely held corporations.  Delaware, for instance, has an entire section of its corporate code dedicated to “close corporations,” which by definition have no more than thirty shareholders.  8 Del. C. § 342(a).  The corporation may be managed by either the shareholders or a board of directors, so long as the choice is set forth in the certificate of incorporation.  8 Del. C. § 351.

In contrast to a corporation, LLCs have fewer structural requirements.  LLCs, as business entities, were originally modeled after partnerships.  As a result, management of an LLC is typically vested in all of the owners of an LLC.  The owners in charge are, in most jurisdictions, termed “manager-members,” in contrast to other owners, who are just called “members.”  A non-member may also be designated as a “manager,” and the powers awarded to “manager-members” and “managers” are similar.  A “manager-member” or a “manager” is usually designated in the LLC’s operating agreement, which in most LLCs governs the relationship between the members.  In most jurisdictions, LLC laws do not make any distinction between LLCs based on the number of members.  

Please Note:  McCabe Rabin, P.A. provides these FAQ’s for informational purposes only, and you should not interpret this information as legal advice.  If you want advice as to how the law might apply to the specific facts and circumstances of your case, please contact one of our attorneys.

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