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Burwell v. Hobby Lobby and Your Corporation

by | Jul 5, 2014 | Business Law |

Burwell v. Hobby Lobby may affect your business. The Supreme Court of the United States, in a 5-4 decision, held, in part, that the Department of Health and Human Services’ regulations imposing the contraceptive mandate, as applied to closely-held corporations, violates the Religious Freedom Restoration Act of 1993. Burwell v. Hobby Lobby, No. 13-354 (June 30, 2014). In the midst of the seemingly endless amount of news coverage and legal analysis, it is important for business owners to understand how this ruling applies to their business and their employees. Specifically, it is important to understand the difference between a closely-held corporation and a publicly-held corporation. However, at this point, it is unclear how this holding might affect other corporate forms.

Although the Court did not define “closely-held corporation,” the IRS definition may be helpful. The IRS defines a closely-held corporation as one with “more than 50% of the value of its outstanding stock … directly or indirectly, owned by or for five or fewer individuals.” Typically, closely-held corporations are family-owned, which results in little, if any, trading of the shares. As the majority emphasized, the Hobby Lobby decision only applies to closely-held corporations, such as Hobby Lobby Stores, Inc., Conestoga Wood Specialties Corp., and Mardel Christian & Education Stores, Inc. (see Hobby Lobby at 11-15).

In contrast, a publicly-held corporation (also referred to as a publicly-traded corporation) is “one whose shares are traded to and among the general public.” 1 W. Fletcher, Cyclopedia of the Law of Corporations §56 (rev. ed. 2014). In addition to compliance with applicable NYSE and NASDAQ listing rules, publicly-held corporations are subject to a much broader scope of regulations, including those that regulate the offering and sale of securities, as well as the securities marketplace. Unlike publicly-held corporations, such as Berkshire Hathaway or General Electric, the Hobby Lobby decision only pertains to closely-held, for-profit corporations. Thus, the United States’ largest companies, often thought to compose “Corporate America,” are not currently affected by the Court’s holding in Hobby Lobby.

If you have any questions about your corporation, closely-held or publicly-traded, or how the Hobby Lobby decision affects your business, contact the experienced corporate attorneys at The Loftin Firm, P.C. today.