| Mention the corporate entity and most people start | | | | provides. The protection is exactly the same as found |
| thinking about S or C designations. In some states, | | | | in traditional corporations. LLCs are purported to offer |
| close corporations are another variable that are | | | | such protection, but the truth is nobody is absolutely |
| available. | | | | sure this is the case. The protection provided by the |
| First things first - a close corporation does not refer to | | | | corporate entity has been hashed out over hundreds |
| a closing as with a door. It refers to a limited number | | | | of years and is clear. The LLC is only 20 years old as |
| of shareholders. It is a unique entity that is not available | | | | a commonly used entity and the courts have not yet |
| in all states, but is worth a look where it is. | | | | fully ruled on how the liability shield will work. |
| The close corporation was originally designed to be a | | | | There are limits and downsides to the close |
| more user-friendly business entity than traditional | | | | corporation. First, the number of shareholders is |
| corporations. It was the LLC before limited liability | | | | restricted, often to 25 to 35 shareholders. Also, minority |
| companies existed. Once LLCs received favorable tax | | | | shareholders have a lot of power. A single shareholder, |
| designations in the late 1980s, the close corporation | | | | for instance, may be able to file a request for |
| became the forgotten stepsister of business entities. | | | | involuntary dissolution of the corporation with the |
| That being said, it offers some unique advantages. | | | | relevant Secretary of State. This can, of course, lead |
| So, what advantages does the entity have over the | | | | to some interesting board meetings. Finally, close |
| LLC? The biggest advantage often has to do with | | | | corporations run the real risk of being attacked through |
| state taxes. Many states have taken note of the | | | | alter ego claims as they are often run shoddily by the |
| popularity of the LLC and passed fees and taxes that | | | | limited number of shareholders and directors. |
| make the LLC unattractive. In California, for instance, | | | | The close corporation is a business entity that provides |
| there is a gross revenue tax on the LLC. Yes, | | | | an interesting and unique set of positives in states |
| GROSS revenues. The close corporation faces no | | | | where it is available. The regulations applicable to it |
| such tax. | | | | vary by state and you should investigate those in your |
| Another advantage of a close corporation compared | | | | jurisdiction before addressing them. |
| to an LLC is the protection from personal liability it | | | | |