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A “statutory close corporation” is a corporation with fifty (50) or fewer shareholders that has elected to be treated as such by adding a paragraph to the Articles of Incorporation.
Three major features of a Statutory Close Corporation are most important to keep in mind:
The first is reduced formality. Usually, when a corporation is involved in a lawsuit, it is common for the other side to challenge the validity of the corporation on account of its failure to follow corporate formalities. The failure of a statutory close corporation to observe standard corporate familiarity is not ground for imposing personal liability of the shareholders for the liabilities of the corporation. However, it should be stated that there is very little case law to set a precedent, so it is unclear how far the courts will go in excusing corporate formality, i.e. keeping timely, up to date and complete company minutes.
The second major feature is that Georgia statute provides a simple “right of first refusal” requirement between shareholders. This works well if the ownership between the shareholders is relatively balanced. In this case, if one shareholder wants to sell the business and finds a buyer, the other shareholder(s) have the right to match that price and make an offer.
The third feature is the ability to not have a Board of Directors. This can be viewed as an extension of the first feature of reduced formality. If the Board of Directors is eliminated, voting is by percentage of ownership of the company. Thus, if ownership is not equal, voting strength varies. For example, let’s take the example of a corporation that has one 60% shareholder and two 20% shareholders. If there is a Board of Directors consisting of all three shareholders, the two 20’s can outvote the 60. However, with no Board of Directors, the reverse is true.
In order to help you decide what the best option for you is, please refer to the profiles below:
Choose a Close Corporation without directors if you will have:
- One shareholder with no plans to add another shareholder;
- More than one shareholder with each owning the same percentage; or
- More than one shareholder with each owning different percentages that want to vote by percentage interest.
Choose a Close Corporation with directors if you will have:
- More than one shareholder each owning different percentages that want to vote per capita;
- The type of business that your business prospects will expect to have a Board of Directors (i.e. Franchising)
Choose a Standard Corporation without electing Close Corporation Status if you will have:
- One powerful shareholder that rules the corporation with one or more junior shareholders;
- One or more shareholders rule the corporation and want to give key employees stock ownership as incentive. (A custom Shareholder’s Agreement is strongly advised in these situations.)
Georgia Areas We Serve
Coleman Legal Group, LLC handles cases in the following cities and communities: Atlanta, Alpharetta, Roswell, Johns Creek, Milton, Cumming, Marietta, Sandy Springs, Woodstock, Kennesaw, Gainseville, Norcross, Lawrenceville, Midtown, Inman Park, Duluth, Buckhead, Dunwoody, Vinings and Smyrna.
Our attorneys frequently handle cases for clients residing in the following counties: Fulton, Gwinnett, Forsyth, Cobb, DeKalb, Henry, Cherokee, Douglas, Carroll, Coweta, Paulding, Bartow, Hall, Barrow, Walton, Newton, Rockdale, Henry, Spalding, Fayette and Clayton.
Coleman Legal Group, LLC’s Georgia lawyers practice in the areas of Business Law, Divorce, Family Law, Immigration and Bankruptcy. We have two convenient offices located at:
Alpharetta Georgia Office
5755 North Point Parkway
Alpharetta, GA 30022
Atlanta Georgia Office
659 Auburn Avenue Northeast
Atlanta, GA 30312
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