Statutory close corporations a great alternative for many businesses

business attorney

Many small business owners choose, by mere default and for simplicity, just to be a sole proprietor. But that choice cheats them of the benefit of a more formal structure that can better protect their personal assets from the liabilities of the business, and allow for continuation upon an owner’s death. 

For small business owners looking for the protection of a corporation and the simplicity of something less formal, a “statutory close corporation” may be just right.

Statutory close corporations, or SCCs, are a lesser known option that became available in 1989. It’s an option for businesses that have fewer than 50 shareholders, would prefer no board of directors, want automatic restrictions on share transfers and therefore no separate buy-sell agreement. SCCs allow people who operate small businesses to have the same protections without all the same formalities of a larger corporation.

Some requirements remain the same: SCC owners should still keep separate finances and file annual reports with the state. They also must be sure third parties know they’re dealing with a corporation, not individuals. But they are not required to have a separate board of directors or annual shareholder meetings. Shareholders are given ultimate flexibility in making business decisions.

They’re called “close” corporations because they refer to companies where the stock is closely held, so they’re not right for entities that foresee a public stock offering.

In determining whether an SCC is right for your company, consider potential risks and growth plans. Do you produce a product that carries an increased risk for injury? Do you anticipate franchising your business or offering stock to other potential investors?

If you answer yes to questions such as these, other corporate structures may be more appropriate in providing a more standard and formal structure more familiar to courts and the business community.

Even if you’ve already established a business and elected another corporate structure, changing to an SCC can be easy and affordable. And it can help eliminate those sleepless nights that come when you realize you forgot to have an annual meeting or no longer have three people on the board of directors.

If you think an SCC might be right for you, the best advice is to consult an experienced corporate attorney. He or she can help you weigh the risks and benefits and make an informed decision. Whether that leads to an SCC or something slightly more formal, you’ll know you have a structure that provides the most benefit for your unique business.



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