Categories: Business Basics

Business Basics: What is a statutory close corporation?

Corporations are appealing for a lot of reasons: there are numerous tax benefits, they offer a sense of protection by legally separating the business owner from the business entity, and they’ve been around for so long that, if done correctly, they’re known as a rock-solid business structure.

Though, often, new small business owners are wary of incorporating because of the paperwork and overall responsibility that comes with filing a corporation. A lot goes into the maintenance of a corporation: corporate meetings, annual elections, corporate minutes, among other paperwork. And if you fail to keep up with these practices, your business could fall into bad standing with the state and even be at risk of dissolution.

Thankfully, there is a way to get the perks of a corporation but the flexibility and ease of an LLC- the statutory close corporation. The statutory close corporation falls under California Corporations Code section 158. Just be sure to have less than 35 shareholders to qualify. And keep in mind that California Corporations Code Section 300 states, “The failure of a close corporation to observe corporate formalities relating to meetings of directors and shareholders in connection with the management of affairs, pursuant to an agreement authorized by subdivision (b), shall not be considered a factor tending to establish that the shareholders have personal liability for corporate obligations.”

Additionally, not only does a close corporation waive the corporate formalities, but the shareholder agreement should also address things like restrictions as to whom a shareholder can sell his stock to, or requiring a shareholder to sell his shares in case of embezzlement or breach of fiduciary duties.

So it is possible to get all the benefits of a corporation while not having to worry about the repercussions that come along with failing to keep up with all the paperwork.

Ask us about statutory close corporations today! Visit us at MyCorporation.com or give us a call at 1 877 692 6772!

Deborah Sweeney

Deborah Sweeney is an advocate for protecting personal and business assets for business owners and entrepreneurs. With extensive experience in the field of corporate and intellectual property law, Deborah provides insightful commentary on the benefits of incorporation and trademark registration. Education: Deborah received her Juris Doctor and Master of Business Administration degrees from Pepperdine University, and has served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in corporate and intellectual property law. Experience: After becoming a partner at LA-based law firm, Michel & Robinson, she became an in-house attorney for MyCorporation, formerly a division in Intuit. She took the company private in 2009 and after 10 years of entrepreneurship sold the company to Deluxe Corporation. Deborah is also well-recognized for her written work online as a contributing writer with some of the top business and entrepreneurial blogging sites including Forbes, Business Insider, SCORE, and Fox Business, among others. Fun facts/Other pursuits: Originally from Southern California, Deborah enjoys spending time with her husband and two sons, Benjamin and Christopher, and practicing Pilates. Deborah believes in the importance of family and credits the entrepreneurial business model for giving her the flexibility to enjoy both a career and motherhood. Deborah, and MyCorporation, have previously been honored by the San Fernando Valley Business Journal’s List of the Valley’s Largest Women-Owned Businesses in 2012. MyCorporation received the Stevie Award for Best Women-Owned Business in 2011.