Specializing in Midwest & Southwest Incorporation & LLC formation

Only the following states in Proactive Management's service area offer Close Corporation status:
AZ, IL, KS, MO, NV, OH, TX & WI

Limited Personal Liability: The shareholders of a Close Corporation are personally liable for the debts and liabilities of the Close Corporation only to the extent of their capital contribution. However, those shareholders managing the affairs of the business in lieu of the board of directors are subject to liability as if they were members of the board of directors.

Distributions: Corporate earnings remain within the company until they are paid out. Profits are distributed to shareholders via dividends, redemption of shares, or the repurchase of shares by the corporation. Dividends are declared at the discretion of directors. Same as Regular Corporations

Taxation: Taxation of the corporation depends on the type of close corporation formed, a C Corporation or a Subchapter S Corporation. The profits of a Regular Corporation (C Corporation) are subject to double taxation once at the corporate level and again when profits are distributed as dividends to their shareholders. If a corporation meets specific IRS requirements a corporation can file for Subchapter S Corporation status and generally avoid tax at the corporate level. Also, generally, the owners of an S Corporation may personally deduct losses the same as a partnership. The IRS requirements for electing S Corporation status are listed under S Corporation.

Transferability of ownership: Transferability is generally limited to a close knit group of shareholders. Since shareholders are so involved in the operation of the business, limits on the transferability of shares and prohibitions against public investors are some of the attractions of this form of corporation. By limiting transferability using restrictions such as the right of first refusal and buy-sell agreements in the articles of incorporation or bylaws, corporate ownership is restricted to those who are most closely tied to the ongoing operation and continued success of the business.

Formation: A close corporation will have in its articles of incorporation a provision stating that "this corporation is a Close Corporation." Bylaws are generally not required if provisions normally included in bylaws are included in the shareholder's agreement. A corporation may be formed initially as a close corporation, or it may amend its articles of incorporation to include a statement to that effect.

Start Now! Incorporate in your state:
AZ, IL, KS, MO, NV, OH, TX, & WI

Still have questions? Go to How does one form of business compare to another, glossary of business terms, or contact us.
 

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