Corporate Law Blog

Public invited to offer comments on exactly what constitutes closely held corporation

Readers may remember that the Supreme Court decided a case back in June that closely held corporations were exempt from providing contraceptive coverage to their employees under the Affordable Care Act. As commentators have pointed out, the decision left undecided exactly what closely held corporations are.

While the issue would, at first, seem to be a relatively simple one to solve, it actually isn’t. Exactly what defines a closely held corporation depends on the area of law you consult. To clarify the issue, the Internal Revenue Service has proposed new rules for determining what constitutes a closely held corporation for purposes of the religious exemption, and asks for public comment on those rules. 

Under one proposed definition, closely held corporations would be defined as those in which “none of the ownership interests in the entity is publicly traded” and in which “the entity has fewer than a specified number of shareholders or owners.” Under the second approach, a closely held corporation would be defined as a one in which “a specified fraction of the ownership interest is concentrated in a limited and specified number of owners.” In the first proposal, a key distinguishing factor is the number of shareholders. In the second, the key is that the majority of the corporation is held by a limited number of shareholders.

The challenge with either approach is determining how either definition fits the basis on which the decision was made—that is, that the religious interests of the shareholders are the same as the religious interests of the owners.

In any cases, it will certainly be interesting to see what happens in the case. In the meantime, the opportunity is open for the public to offer comments on the proposed rules.

Source: DealB%k, “In Hobby Lobby Ruling, a Missing Definition Stirs Debate