| If ever there was a misunderstood business entity, it is | | | | while other states do not. Assuming you can form one |
| the close corporation. Most people have heard of | | | | in your state, you need to read up on the rules |
| them, but have no idea what they are. Well, the | | | | applicable in your state. Generally, you should find that |
| answer is pretty simple. | | | | there is a limit on the number of shareholders. This |
| First off, a close corporation is not a business that has | | | | usually isn't too much of a problem because the cap is |
| been shut down. The name suggests as much, but | | | | usually at 30 or more shareholders. This means most |
| such an interpretation is sort of incorrect. The close | | | | small businesses can become close corporations |
| element refers to the number of shareholders in the | | | | without any problem. |
| entity. Specifically, there is a cap on the number of | | | | A secondary issue you are going to have to address |
| people that can have an ownership stake, to wit, the | | | | is the formation process. The close corporation |
| number of shareholders. This number varies from | | | | designation is one that is made with the state, |
| state to state, so you will have to look it up. The | | | | specifically the Secretary of State. The Secretary |
| secretary of state often has a website and provides | | | | usually has very specific rules about how the |
| such information. | | | | designation has to be done. Obviously, such rules differ |
| There are many advantages to a close corporation. | | | | from state to state, but you often have to put the |
| For small business, one of the best is that corporate | | | | designation in the original articles of incorporation in one |
| formalities are often disregarded, meaning you don't | | | | form or another. Again, you should read up on the |
| have to hold board meetings and such. Another | | | | specific requirements for your state. |
| advantage is the ability to restrict share sales, which | | | | Close corporation can be a great way for the little guy |
| lets you avoid a situation where a shareholder sells | | | | to benefit from relaxed corporate rules, while gaining |
| their shares to someone you don't know and don't | | | | the liability and debt protection afforded to huge |
| want in the business. | | | | multi-national corporations. If you are considering |
| Importantly, you must understand that the close | | | | incorporating, this might just be the perfect choice for |
| corporation designation is not allowed in every state. | | | | your business. |
| States such as California allow for their formation, | | | | |