What Is the Difference Between a Close Corporation and an Open Corporation?

Ownership Share Distribution

The difference between a close corporation and open corporation lies in ownership share distribution. In close corporations, shares are held by a small group and not traded publicly. In open corporations, shares are broadly distributed and traded on public markets.

Governance Structure

Shareholders, directors, and officers comprise three main groups in a corporation. Shareholders elect directors to oversee management. Directors appoint officers and ensure the corporation works toward its goals.

Shareholder Limits and Tax Structures

A key difference exists between private companies and close corporations. Close corporations can only have up to ten member shareholders. Employee numbers aren’t limited. However private companies can have unlimited shareholders and employees. Both entities limit liability. Differences also exist in tax structures between close corporations and others, impacting distribution of profit and losses. Close corporations operate similarly to partnerships regarding flexible governance. They also face stock transfer restrictions.

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