Difference Between Close and Open Corporations
The main difference between a close corporation and a regular corporation is how the ownership shares are distributed. Shares in a close corporation are held by only a small number of shareholders and the general public cannot purchase shares. An open or public corporation’s shares are constantly traded on markets, with ownership varying. Close corporations aren’t traded publicly like open corporations.
Governance Structure and Shareholder Limits
Close corporation shareholders elect a board of directors who appoint managers to operate the company. Close corporations operate similar to partnerships with flexible governance. Private companies face no limits on shareholders and employees. Close corporations limit shareholders to around ten; an open corporation has no limits. Both limit legal liability.
Management and Operations
Directors oversee a corporation’s management. Shareholders elect the directors who then appoint officers to operate the company and work towards its goals.
Tax Structures and Profit Distribution
Tax structures also differ between corporation types, influencing profit and loss distribution. Close corporations operate similar to partnerships, often with flexible governance and no required shareholder meetings. Their shares also face transfer restrictions. Close corporations also differ from private companies in terms of shareholder limits and liability.