Consider these pros and cons to determine whether organizing your small business as a close corporation would be the right choice for your business.
Find out more about closing your business
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by Michelle Kaminsky, Esq.
Writer and editor Michelle earned a Juris Doctor degree from Temple University's Beasley School of Law in Philad...
Updated on: September 5, 2023 · 3 min read
If you're organizing a small business, you should know about the concept of a close corporation, an organizational structure that can affect your personal liability, as well as your enterprise's financing and taxation.
Close corporations are also known as statutory close corporations because they are governed by state statutes and have a small number of shareholders. In California, for example, the maximum number of shareholders allowed in a close corporation is 35, while in Arizona, a close corporation may have no more than 10 original investors.
Close corporations differ from general stock corporations, more commonly known as C corporations, in that they are not publicly traded.
As such, a close corporation is exempt from the rules and regulations that apply to general stock corporations, such as those requiring formal annual meetings, a board of directors, and annual reports. Note that not every state allows for the formation of a close corporation.
As with all business structures, a close corporation has advantages and disadvantages. Here are some of the pros:
With so much going for them, close corporations may seem like an obvious choice, but there are also some cons to consider.
As mentioned above, not all states have provisions concerning close corporations. If your state is among those without dedicated close corporation statutes, your company—no matter how many shareholders—would be responsible for complying with the same formal corporation requirements as every other corporation in the state. Choosing the right business structure is critical, so you may find it helpful to get advice from an attorney or online service provider.
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