In a Close Corporation, the board of directors are usually subset of
shareholders acting as representatives of the all shareholders. They
make policy decisions for the business and elect officers.
Most states require Close Corporations to have the lesser of 1) three directors,
directors equaling the number of shareholders in the corporation.
In most cases, officers in a Close Corporation are also shareholders.
Officers manage the day to day operations of the corporation.
Generally, the first three officers of a corporation are the President,
Treasurer and Secretary. In many states, a for-profit Close Corporation with
one director may have one officer fill all three roles.
Since shareholders are active in the day to day management of a Close
Corporation, state laws generally do not require Close Corporations to hold
Reports: Similarly, most states do not require shareholder
Reports: Close Corporations must file annual (in some states
biannual) reports with the state, updating the status of directors, officers,
shareholders, and/or the corporation in general.
Most states require one of the following words, or an abbreviation thereof,
to be included in the name of a Close Corporation:
Close Corporations can do business under
additional fictitious names if they file for a "DBA" in their state or
county. (If you are interested in filing a DBA, please inquire when
placing your order.)
When forming a Close Corporation, the founders must determine how many shares the
corporation will be authorized to issue. For example, the founders may
authorize the corporation to issue 1,000 share, but only actually issue 10
shares to the first owner. This leaves the corporation with the
flexibility to issue 990 more shares to future owners.
Stock ownership is limited to a close knit group
of no more than 30 to 50 shareholders (depending on the state). Generally
corporate Bylaws and/or the Shareholder Agreement restrict the transfer of
shares to parties not involved in the operation of the business.
*Common stock in an
Close Corporation represents a percentage of ownership. Common stock
owners are generally entitled to their pro-rata share of corporate
Many states require a minimum amount of
capital to be contributed to a Close Corporation for the issuance of
shares at incorporation. For example, in Texas, the corporation
must receive at least $1,000.
A Close Corporation may elect to be
taxed as either an S Corporation or a C Corporation.
Day to day business expenses can be deducted under an
Close Corporation they same
way they would be deducted under a C Corporation or S Corporation.
Business expenses must conform with IRS guidelines and be kept separate from