Chartered Property Casualty Underwriter (CPCU) 500 Practice Exam 2026 - Free CPCU Practice Questions and Study Guide

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In a close corporation, why is the death of a shareholder particularly significant?

The death causes shareholders to disband the board, creating voting disparities.

Dividends are paid to remaining shareholders after a death.

Key shareholders are paid high salaries and are difficult to replace.

Ownership is concentrated among a few major shareholders who are often managers.

In a close corporation, ownership is concentrated among a small number of individuals who are often active managers. When one of those key shareholders dies, it directly changes both who owns the company and who has influence over its day-to-day decisions. This can disrupt leadership, strategy, and continuity, since the deceased owner’s shares may be tightly tied to management control and vision. The situation is further complicated by the fact that shares in a close corporation are typically illiquid and transfers are restricted, so there’s often a need for predefined arrangements (like a buy-sell agreement) to handle the transfer of ownership smoothly and preserve control within the remaining owners or the company itself. Thus, the death of a major shareholder is significant because it can abruptly alter who runs the business and how it is governed.