A Close Corporation is not for everyone. Review the following and/or consult with your attorney and tax advisor to determine whether this form of corporation is best for you.

When should I consider forming an Close Corporation?

• If your corporation will not have more than 35 shareholders.
• If your corporation will issue only one class of stock (common stock) (if you anticipate an investor requiring preferred stock, consult an attorney).
• If your corporation will be owned and run by a small number of family members or close personal friends.
• If you do not plan on bringing in outside investors.
• If you desire a less formal form of management and do not mind losing the formality and defined structure of a standard corporation.

When should I Consider NOT forming a California Close Corporation?

• If you anticipate that your corporation will have more than 35 shareholders.
• If you plan to have shareholders who are not also directors (in a Close Corporation, a non-director shareholder may be held responsible as a director).
• If you plan to bring in outside investors who may require preferred stock.
• If you desire to treat shareholders differently in the rights, privileges or obligations of stock ownership, such as preferred dividends or disparate distribution of profits (such treatment might be considered a second class of stock, which is not allowed in a Close Corporation).
• If the participants in the corporation desire a more formal management and corporate governance structure or desire to limit the rights of shareholders to seek involuntary dissolution of the corporation to those defined in the California Corporations Code (ANY shareholder of a Close Corporation can seek involuntary dissolution; whereas, only a shareholder (or group of shareholders) who hold 33% or more of stock can seek dissolution in a standard corporation.

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