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We spill a lot of ink on the Canna Law Blog talking about different types of business entities that cannabis entrepreneurs often use. In most cases though, the choice is between LLC and corporation. It may come as a surprise to some readers that some states have many different subcategories of corporations, including California. Today I want to examine a rare, though sometimes useful entity: the California close corporation.
What is a close corporation?
You’ve probably heard the term “closely held corporation” tossed around quite a bit. The term usually refers to a corporation with few shareholders, or a corporation with shares that are not publicly traded. However, a closely-held corporation is different from a close corporation, which is actually a special type of California corporation formed per section 158 of the corporations code. If you’re wondering what the state calls a run-of-the-mill corporation, the term is “general stock corporation.”
A close corporation has a few key features that distinguish it from a general stock corporation (or one of the other dozen or so corporation types that exist in the Golden State):
The articles of incorporation and stock certificates must state that
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