What is A closely held business?

A closely held business is a privately owned company where a small group of individuals or a family owns a significant percentage of the company’s shares, typically more than 50%. The owners of a closely held business usually have a close relationship with the company and are often involved in the business’s day-to-day operations.

Closely held businesses are also known as closely held corporations or closely held companies. They are often structured as S corporations, limited liability companies (LLCs), partnerships, or sole proprietorships.

Unlike publicly traded companies, closely held businesses are not required to disclose their financial information to the public. Instead, they may choose to keep their financial information private, offering several benefits, including greater flexibility in decision-making and a higher degree of control over the company’s operations.

Closely held businesses are common in industries such as family-owned restaurants, small manufacturing companies, and professional service firms, such as law firms and accounting practices.

Additionally, there can be tax benefits to owning a closely held business, depending on the structure of the business and the specific tax laws in the country where the business is located. Here are a few examples:

Pass-through Taxation

Many closely held businesses are structured as pass-through entities, such as partnerships, LLCs, and S corporations. This means that the business does not pay taxes on its profits; instead, the profits “pass through” to the owners’ personal tax returns, which are taxed at the individual tax rate. This can be beneficial because the individual tax rate is often lower than the corporate tax rate.

Deductions

Closely held businesses may be able to take advantage of various tax deductions, such as those for business expenses, equipment purchases, and employee benefits. These deductions can help reduce the amount of taxable income for the business and its owners.

Estate Planning

Closely held businesses may offer estate planning opportunities, such as transferring business ownership to family members or creating a trust. These strategies can help reduce estate taxes and ensure a smooth ownership transition during the owner’s death.

It’s important to note that tax laws can be complex and vary from country to country. Owners of closely held businesses should consult with a qualified tax professional to understand the specific tax benefits and implications of owning a closely held business in their country.