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<br />,"' " <br /> <br />CLOSELY HELD CORPORATIONS <br /> <br />The definition of a closely held corporation in Colorado is very simple: C.R.S. S 13-1- <br />127 defines a closely held corporation as "an entity, as defined in section 7-90-102(20), C.R.S. <br />with no more than three owners." (Emphasis added). Section 7-90-102(20) defines entity as <br />"domestic entity or a foreign entity." A domestic entity refers to corporations incorporated <br />within Colorado, and a foreign entity is a corporation incorporated outside of Colorado. <br /> <br />In 1998 the Colorado General Assembly changed the definition of closely held <br />corporation. The previous definition was the following: "(1) As used in this section, unless the <br />context otherwise requires: (a) 'Closely held corporation' means a privately held corporation with <br />no more than three shareholders." Laws 1998, Ch. 166, S 1. <br /> <br />The following is a list of several differences between a closely held corporation and a <br />non-closely held corporation: <br /> <br />(1) In general, the stock of a closely held (or privately held) corporation is not <br />publicly traded on the open market. Stock that is traded on a stock exchange or on the "over-the- <br />counter" market is stock of a publicly held corporation. <br /> <br />(2) In a closely held corporation, the shareholder(s), director(s) and officer(s) may be <br />the same person(s). <br /> <br />(3) In a closely held corporation, action taken informally can be valid even though <br />corporate formalities are not followed. Thus, corporations with few shareholders, and in which <br />directors personally and directly conduct the business, act with little formality. Forbes v. <br />Goldenhersh. supra: Holv Cross Gold Minim? & Millin!? Co. v. Goodwin, 74 Colo. 532.223 P. <br />58 (1924); 2 W. Fletcher, supra, SS 394 & 394.1. See 1 C. Krendl, Closely Held Corporations In <br />Colorado S 5.45 (1981). <br /> <br />(4) In a closely held corporation, the relationship between directors and shareholders <br />is similar to a relationship among partners. Directors owe the highest degree of loyalty and trust <br />to the other shareholders, are required to exercise good faith, and may not use their power to <br />harm the other shareholders. Pueblo Bancor!). v. Lindoe. Inc.. 37 P.3d 492 (Colo.Aoo.2001 ), <br />affd, 63 P.3d 353 (Colo.2003t <br /> <br />(5) Corporate directors and controlling shareholders of a corporation have a fiduciary <br />duty to "act with an extreme measure of candor, unselfishness, and good faith in relation to <br />remaining shareholders"; in the context of close corporations, this duty is enhanced and requires <br />corporate directors to "fully disclose all material facts and circumstances surrounding or <br />affecting a proposed [stock] transaction" with a shareholder. Van Schaack Holdin!?s. Ltd. v. Van <br />Schaack. 867 P.2d 892. 897-98 (Colo. 1 994); Wisehart v. Zions Bancorporation, 49 P.3d 1200 <br />(Colo.App. 2002). <br />