What Is a Statutory Close Corporation

A statutory close corporation is a type of business entity that combines the benefits of a corporation with the flexibility and simplicity of a partnership. It is governed by specific statutes that allow for a more streamlined and efficient operation, making it an attractive option for small businesses.

In a statutory close corporation, the shareholders have more control over the management and decision-making processes compared to a traditional corporation. This structure allows for a more personalized approach, as the shareholders can tailor the corporation’s governance and operational rules to fit their specific needs.

One of the key features of a statutory close corporation is the ability to operate without a board of directors. Instead, the shareholders can directly manage the company’s affairs, simplifying the decision-making process and reducing administrative burdens. This can be particularly advantageous for small businesses where the shareholders are actively involved in day-to-day operations.

Another benefit of a statutory close corporation is the ability to restrict the transfer of shares. This allows the shareholders to maintain control over who becomes a shareholder and can help protect the business from unwanted or disruptive investors. Shareholders can establish restrictions on share transfers through shareholder agreements or bylaws, providing them with more control and stability.

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Additionally, a statutory close corporation can enjoy certain tax advantages. For example, it may be able to elect to be taxed as an S corporation, which allows for pass-through taxation. This means that the corporation’s profits and losses are passed through to the shareholders’ personal tax returns, avoiding the double taxation that can occur with traditional corporations.


1. How is a statutory close corporation different from a regular corporation?
A statutory close corporation offers more flexibility and control to the shareholders in terms of management and decision-making.

2. Do all states have statutes for close corporations?
No, not all states have specific statutes for close corporations. However, many states have adopted legislation that allows for the formation of statutory close corporations.

3. Can a statutory close corporation have more than one class of shares?
Yes, a statutory close corporation can have multiple classes of shares with different rights and privileges.

4. Can a statutory close corporation issue stock options to employees?
Yes, a statutory close corporation can issue stock options to employees as a form of compensation.

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5. Can a statutory close corporation convert to a different entity type?
Yes, a statutory close corporation can convert to a different entity type, such as a regular corporation or a limited liability company.

6. Can a statutory close corporation have outside investors?
Yes, a statutory close corporation can have outside investors, but their involvement may be subject to restrictions set by the shareholders.

7. Can a statutory close corporation be publicly traded?
No, a statutory close corporation cannot be publicly traded. It is typically limited to a small number of shareholders.

8. Is a statutory close corporation suitable for startups?
A statutory close corporation can be suitable for startups, especially those with a small number of shareholders who want more control over the company’s management.

9. Can a statutory close corporation still enjoy limited liability protection?
Yes, like a regular corporation, a statutory close corporation offers limited liability protection to its shareholders, shielding them from personal liability for the company’s debts and obligations.

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