Paralegal Advanced Competency Exam (PACE) Practice Exam

What defines a closely held corporation?

1. A corporation held by a large public shareholders

2. A corporation held by a small group of individuals

3. A corporation traded on international securities exchange

4. A corporation limited to government ownership

The correct answer is: A corporation held by a small group of individuals

A closely held corporation is defined as a business entity that is owned by a small group of individuals, often comprising family members or a small number of investors. This particular structure allows for more control and direct involvement in the business operations since the ownership is concentrated among a limited number of shareholders. This arrangement contrasts with a publicly held corporation, where shares are traded on stock exchanges and owned by a large number of public shareholders. The limited number of owners in a closely held corporation often leads to more streamlined decision-making processes and a focus on long-term growth rather than meeting the quarterly expectations of public investors. Other options, such as those involving government ownership or international trading, do not appropriately define a closely held corporation as they refer to different types of corporate structures or ownership arrangements. The essence of a closely held corporation lies in the limited number of shareholders, emphasizing private control over public trading or governmental ownership.