question.jpgIn Business Law

What is a close corporation?

Some states allow for corporations to be so-called close corporations. Close corporations do not have to follow all of the strict formalities that other corporations have to follow, and the requirements are more similar to those that a partnership must follow. For example, many states that allow for close corporations don’t require such close corporations to hold annual meetings (for either directors or shareholders).

Each state that allows for such a close corporation generally has its own rules about how a corporation can qualify for status as a close corporation. These requirements generally require that the company have a limited number of shareholders, that the corporation does not have any public stock, that there is a written shareholders agreement, etc. Most states also generally place certain restrictions upon shareholders of a close corporation who want to sell their shares.