A close corporation, also known as a closely held corporation, is a type of business structure that allows a small group of shareholders to operate their business with a greater degree of flexibility and autonomy than a traditional corporation. Close corporations are commonly used by family-owned businesses, partnerships, and small groups of investors who want to retain control of their company while limiting their liability.
One of the key components of a close corporation is the close corporation agreement. This is a legal document that outlines the rights and responsibilities of the shareholders, as well as the rules for managing the company. The close corporation agreement is similar to the bylaws of a traditional corporation, but it has several unique features that are tailored to the needs of a closely held business.
The close corporation agreement typically includes the following provisions:
1. Shareholder rights and responsibilities: The agreement outlines the rights and responsibilities of each shareholder, including voting rights, dividend entitlements, and obligations to contribute capital or services to the company.
2. Board of directors: The agreement may establish a board of directors, which is responsible for making major decisions on behalf of the company. However, in a close corporation, the board may be composed solely of the shareholders or their representatives.
3. Management structure: The agreement may specify the roles and responsibilities of company officers and managers, including the CEO, president, and other key employees. In some cases, the shareholders may act as the managers.
4. Buy-sell provisions: The agreement may include provisions for buying and selling shares among the shareholders, such as a right of first refusal or a mandatory buyout in the event of death or disability.
5. Non-compete provisions: The agreement may include provisions that prohibit shareholders from competing with the company or soliciting its customers or employees.
6. Dissolution provisions: The agreement may specify the conditions under which the company may be dissolved, such as a vote of the shareholders or the occurrence of a specific event.
The close corporation agreement is a crucial document for any closely held business. It provides a framework for managing the company and resolving disputes among shareholders. It also protects the interests of each shareholder by defining their rights and responsibilities and establishing clear rules for buying and selling shares.
If you are considering forming a close corporation, it is important to work with an experienced business attorney to draft a comprehensive close corporation agreement that meets the unique needs of your business. By doing so, you can ensure that your company is structured in a way that maximizes your control and minimizes your liability.