Future Business Leaders of America (FBLA) Agribusiness Practice Test

What is a defining feature of a close corporation?

1. It must have over 35 shareholders

2. Ownership is open to the general public

3. Management is complex with many levels of hierarchy

4. Ownership is restricted to a defined class of people

The correct answer is: Ownership is restricted to a defined class of people

A defining feature of a close corporation is that ownership is restricted to a defined class of people. This structural characteristic differentiates close corporations from publicly traded companies. In a close corporation, the shares are not available for public trading, and ownership is commonly limited to a small group of individuals, such as family members or a small number of investors. This structure allows for more control over the company and often results in less regulatory scrutiny compared to larger, publicly held companies. In contrast, the other options highlight features that are not typical of close corporations. For instance, having over 35 shareholders does not apply to close corporations, as they often have considerably fewer shareholders. Additionally, ownership being open to the general public directly contradicts the core essence of a close corporation, which is characterized by limited ownership. Lastly, the management of a close corporation tends to be simpler and more direct, often involving fewer hierarchical levels, unlike large corporations that may have complex management structures due to their size and the dispersion of ownership.