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.
什么是封闭式公司？
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 the entity is a close corporation
- It can only have 35 shareholders – if there are more than 35 shareholders , the company stops being a close corporation regardless of what the articles or stock certificates say.
- The main governing document is a shareholders agreement which can relax many of the normal formalities that would apply to a general stock corporation. More on that below.
为何选择封闭式公司？
封闭式公司对小型企业而言是理想选择，这类企业股东虽希望成立公司，却不愿承担随之而来的繁文缛节。如前所述，股东可放宽普通股份公司的大部分常规程序要求，甚至可参与封闭式公司的管理——这在普通股份公司中仅限于董事和高管。封闭式公司还可灵活调整分配条款，其运作模式与合伙企业（有限责任公司）颇为相似。
So for small ventures with only a few shareholders that do not want to adhere to strict corporate formalities but who still want the corporate form, close corporations can offer some unique benefits. But there are still some drawbacks.
何时应避免选择封闭式公司
根据定义，封闭式公司仅限于固定的股东群体（35）。这对股东希望保持私密性而言是理想选择，但若需融资或出售股权则存在局限。当然，他们可以"转换"为普通股份公司，但这意味着必须彻底改变公司的治理结构才能实现。
Additionally, shareholders in close corporations also need to be concerned with liability issues to the extent they participate in the management of the company. In your average general stock corporation, shareholders have very limited liability, because they simply passively own a piece of the pie. But once that changes and they start running the show, they may have duties to their co-shareholders that could lead to disputes when things go south.
One other thing that may deter founders from forming close corporations is the fact that any shareholder can file a petition to involuntarily dissolve a close corporation. This is different from a general stock corporation where only shareholders with larger percentages of equity could initiate such a proceeding. In other words, in a two-shareholder close corporation where one has 99% of the stock, the 1% shareholder could initiate a dissolution proceeding.
The involuntary dissolution petition issue could probably be handled in a shareholders agreement, but these are often overlooked, even with close corporations. And failing to get a shareholders agreement could be a huge problem that undoes a lot of the benefits of forming a close corporation in the first place.
需要加州大麻法律方面的帮助吗？
In future posts, I’ll make sure to outline some of the less common entity types that cannabis companies sometimes explore. But overall, I don’t see close corporations used often in the cannabis industry. There are definitely companies that could benefit from this more “exotic” form of entity, if done correctly.
