MSN Law Office

Close Corporations
Columbus, Ohio

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Formation & Governance

PRACTICE AREAS

Close Corporation Formation

What is an Ohio Close Corporation?
Because of the corporate formalities that corporations are required to observe, it’s not unusual for businesses with relatively few shareholders to elect to be treated as “close” corporations. When set up correctly, a close corporation can greatly simplify both how the corporation is run and how the relationships among the various shareholders is managed. For example, a close corporation can eliminate the board of directors and dispense with having an annual shareholders’ meeting. Instead, the shareholders act in place of a board of directors and run the corporation much like a partnership or LLC.

How Does an Ohio Corporation Become a Close Corporation?
To form a close corporation in Ohio:

  • All of the shareholders must agree in writing to adopt a close corporation agreement that is governed by ORC Section 1701.591. [Amendments to the close corporation agreement are usually unanimous, though the agreement itself may reduce this threshold to 80% of the outstanding shares.]
  • The shares in a close corporation must be represented by stock certificates that conspicuously note the existence of the close corporation agreement. [The shares also cannot be listed on one of the national stock exchanges or registered under securities laws.]

What should a close corporation agreement include?
A close corporation agreement often replaces corporate regulations or bylaws and will look much like an LLC operating agreement or partnership agreement. The close corporation agreement should address:

  • How will the business and affairs of the corporation be managed?
  • What might trigger a dissolution of the corporation?
  • Who will serve as officers of the corporation? What authority does each officer position have?
  • Will the corporation eliminate the board of directors? If not, what authority will directors have?
  • Will any of the officers be employees of the corporation? If so, under what conditions?
  • How will dividends be declared and paid? How will profits be distributed or divided?
  • Can the corporation issue or sell additional shares
  • How will deadlocks or tie votes be addressed?
  • Will the corporation dispense with the formality of an annual meeting? [The close corporation must still issue annual financial statements to its shareholders.]