Close corporations, LLCs, and other corporate entities

Question 1

Close corporation definition

Answer 1

Corporation with few shareholders (usually under 100)

Question 2

Close corporation characteristics

Answer 2

-Shareholders ALSO officers/directors
-typically NOT public
-relaxation of rigid rules for corporations (bc easier for shareholders to get stuck)

Question 3

Closely held corporation preemptive rights

Answer 3

Default rule prohibiting preemptive rights MAY be relaxed

Question 3

S Corporation definition

Answer 3

Corporation for state corporate law purposes with SPECIAL TAX treatment

Question 4

Close corporation voting agreements

Answer 4

CAN form voting agreements to vote as block (unlike large corporations)

Question 5

LLC vs. S Corp

Answer 5

LLC is MORE FLEXIBLE and (unlike S Corp) has:

-no limitations on number of shareholders
-no residency requirements
-no natural person requirements

Question 6

LLC Definition

Answer 6

Combines limited liability of corporations with tax treatment of partnership

Question 7

LLC compared to corporations

Answer 7

-Legally, LLC generally treated like corporation
-difference in terminology and tax features, but otherwise, analyze LLCs under general CORPORATE law principles

Question 8

S Corp taxation rules

Answer 8

Only taxed ONCE, like partnership

NOT taxed at entity level

Question 9

Can S Corps have unlimited shareholders?

Answer 9

NO, limited shareholder #

Question 10

LLC key characteristics: establishment and management

Answer 10

–Articles of organization (NOT incorporation)
–operating agreement filed with state
–owners of LLC are MEMBERS, not shareholders
–LLC is presumed to be managed by ALL members