Corporations Close Corporations Law and Legal Definition
A close corporation is generally defined as a corporation owned by a limited number of stockholders, usually no more than 35, who generally are active in the affairs of the corporation. A close corporation is often composed of family members and frequently have restrictions on the transfer of shares. Laws are enacted on a state-by-state basis, allowing close corporations to manage themselves more informally than most corporations, such as allowing decisions without meetings of the board of directors.
The following is an example of a state statute dealing with close corporations:
"The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the shareholders of the corporation rather than by a board of directors. So long as this provision continues in effect:
- " No meeting of shareholders need be called to elect directors;
- Unless the context clearly requires otherwise, the shareholders of the corporation shall be deemed to be directors for purposes of applying provisions of this article; and
- The shareholders of the corporation shall be subject to all liabilities of directors.
- Such a provision may be inserted in the articles of incorporation by amendment if all incorporators and subscribers or all holders of record of all of the outstanding shares, whether or not having voting power, authorize such a provision. An amendment to the articles of incorporation to delete such a provision shall be adopted by a vote of the holders of record of not less than one-third of all outstanding shares of the corporation, whether or not otherwise entitled to vote. If the articles of incorporation contain a provision authorized by this section, the existence of such provision shall be noted conspicuously on the face or back of every certificate for shares issued by such corporation."