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Q.What is a Close Corporation?

A.A general corporation is often referred to as both a C- Corporation and an S- Corporation. The "Close" corporation is a variation of the general corporation. A close corporation is primarily used for very small companies, in which all of the shareholders will be employees of the corporation and stock transfer restrictions are desired.

Although the formation may vary, generally in a close corporation: (1) the Board of Directors is eliminated so the shareholders (owners of the corporation) directly control and run the corporation and (2) the sale and transfer of the stock is restricted so as to provide the corporation and other shareholders a right of first refusal. This means that before any share transfer may occur, the selling shareholder must offer the corporation and its shareholders the right to purchase.

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