Understanding Closely Held Stock: Definition & Investor Implications

Closely held stock is a type of stock that you will find in many different companies. Here are the basics of closely held stock and what it means to investors.

Closely Held Stock

The term closely held stock refers to when an individual or small group holds all of the outstanding shares of a stock. By comparison, widely held stock may be traded by millions of different investors on the stock market. Closely held stock is typically not available to trade on the stock market. If it changes hands, it will do so on a person-to-person basis. 

When It Is Used

Closely held stock is typically utilized for small companies that do not wish to distribute ownership rights to others. This is commonly used when an individual entrepreneur incorporates his or her business and then keeps all of the shares of stock for him- or herself. It can also happen when a group of individuals start a business together. They might incorporate the business and then divvy up the outstanding shares of stock equally among themselves. If one of the members of the business decides to get out of the business, they can sell their shares to one of the other shareholders or a new individual.