Ask a Houston Business Lawyer: What Is a Closely Held Corporation Under Texas Law?

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  3. Ask a Houston Business Lawyer: What Is a Closely Held Corporation Under Texas Law?
Houston Business Lawyer

A Houston business lawyer can help incorporate your company. Your Texas business could be a sole proprietorship, partnership, limited liability company, or corporation. But there’s more than one classification of corporation. For example, Texas law specifically defines the closely held corporation. You should confer with a lawyer to determine what type of entity you should incorporate your business under.

Why does it matter? Your Houston business lawyer could explain this in great detail, but we cover the basics in this article. If you have questions or need help with how to classify your business, contact a member of our experienced and knowledgeable legal team for assistance. We can help you determine what type of entity would be most beneficial to you and your business.

Texas Law and the Closely Held Corporation

More than a few Texas laws relate to business formation and operation. However, we will look specifically at the Texas Business Organizations Code (the “Code”).

The Code combines several previous statutes, including:

· Texas Business Corporation Act

· Texas Non-Profit Corporation Act

· Texas Miscellaneous Corporation Laws Act

Generally, the Code applies to Texas for-profit and non-profit business entities. The Code simplified filing procedures, renamed some documents, and introduced new terms for many existing concepts.

Defining the Closely Held Corporation

Section 21.563 of the Code contains the information we need to know about the closely held corporation. The specific definition states:

“In this section, “closely held corporation” means a corporation that has:

(1) fewer than 35 shareholders; and

(2) no shares listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national securities association.”

So, closely held corporations consist of a small group of owners. Also, the company cannot be listed on exchanges like the Nasdaq or New York Stock Exchange (NYSE).

As your Houston business lawyer can tell you, closely held corporations still have the same advantages as other corporations. This includes limited personal liability and more widespread sources of capital. Thus, if you meet the requirements under Texas law, it may be advantageous to set your business up as a closely held corporation.

What this Status Means for You

Shareholders sometimes file claims called derivative actions. A shareholder can file on behalf of the corporation and against directors, managers, and other shareholders. Typically, the cases include claims that the directors and managers are mishandling the corporation in some way.

Section 21.563 of the Code also discusses derivative proceedings and closely held corporations. Specifically, prior sections of the Code (Sections 21.552-21.560) may not apply to the proceeding if the corporation is closely held.

Whether filing a derivative claim or defending it, it’s crucial to understand how Texas law applies to the closely held corporation.

Call a Houston Business Lawyer to Learn More About the Closely Held Corporation

The attorneys at Henke, Williams & Boll assist clients like you with litigation and other matters. But we don’t just help a little. We win cases through aggressive representation using extensive knowledge of the Texas legal system.

Our legal team has more than 100 combined years of experience practicing law, and our broad range of knowledge enables us to provide practical solutions tailored to the unique needs of our clients. We are a proud law firm with commitment and passion for assisting those in need. Let us help you get the results you deserve.

For a free consultation or phone appointment, call 713-940-4500 or use the convenient contact form located on our website.  We represent clients in the Houston area, including Harris County, Montgomery County, Waller County, Fort Bend County, Galveston County, and Brazoria County.

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