Close Corporations

In 1977, California adopted statutory provisions to govern close corporations after recognizing the unique circumstances surrounding this type of legal entity. California close corporations share certain common characteristics. For example, close corporations have minimal shareholders compared to other forms of corporations. Additionally, most shareholders in close corporation share in the management and operation of the corporation. The management structure for close corporations is often much simpler, and is similar to partnerships, rather than larger, publicly-traded corporations. Close corporations are often only privately traded rather than publicly traded.

Alongside these similar characteristics, close corporations must also meet specific requirements to accurately structure as this form of legal entity. Close corporations must include certain mandatory language in their articles of incorporation. For instance, pursuant to California Corporations Code § 158(a), the articles of incorporation must limit the number of all classes of shares that the corporation can issue to thirty-five. Additionally, the articles of incorporation must specifically state that the corporation is a close corporation.

Registering as a close corporation allows the corporation to waive out of some of the requirements that apply to other forms of corporations. For example, California Corporations Code §§ 100 et seq. specifically allow close corporations to allocate management responsibilities and divide profits among the shareholders in its articles of incorporation. In California, the Corporations Code §§ 705–706 also permit close corporations to define voting agreements, voting classes, and proxy voting for the corporation.

Close corporations may dissolve voluntarily much like other corporations. However, if a close corporation is in the process of dissolving, any shareholder may petition a governing court, in the appropriate jurisdiction, to oversee the dissolution proceeding. California Corporations Code §§ 1800, et seq. governs involuntary dissolution of close corporations and other corporate forms. In a close corporation, any shareholder may initiate involuntary dissolution proceedings by filing a verified complaint seeking dissolution with the governing court of the appropriate county. In fact, California Corporations Code § 1800(b)(5) provides a specific cause of action for dissolution. The shareholders in close corporations have the unique capacity to seek involuntary dissolution where it is necessary to protect the shareholders.

Salar Atrizadeh, Esq., an attorney with the Law Offices of Salar Atrizadeh, is uniquely able to help close corporations throughout formation, operation, and in either voluntary or involuntary dissolution. Mr. Atrizadeh is an experienced attorney, with extensive practice in business litigation and transactional matters. He has represented corporate clients in transactional matters, such as drafting corporate documents and business plans. Mr. Atrizadeh has also helped clients litigate matters throughout the course of their business operations. Our clients are able to benefit from Mr. Atrizadeh’s broad experiences, and bi­-coastal offices in Los Angeles, California, and Washington D.C.

You may contact the Law Offices of Salar Atrizadeh to speak with an experienced attorney regarding your business transaction or litigation concerns.