The first important step in establishing a business as a corporation is to file Articles of Incorporation with the Ohio Secretary of State. Generally speaking, a corporation is owned by its shareholders. The shareholders elect individuals to be on the Board of Directors of the corporation. The Board of Directors then elects individuals to serve as corporate officers who run the day-to-day affairs of the corporation.
In certain circumstances, it may be beneficial for a family corporation to enter into a Close Corporation Agreement pursuant to Ohio Revised Code §1701.591. This agreement allows the shareholders to establish certain provisions which will be binding on the corporation and all of the shareholders concerning any aspect of the corporation’s affairs or the relations of the shareholders among themselves.
Some of the matters that a Close Corporation agreement may address are as follows:
- Management of the business and affairs of the corporation;
- The ability of shareholders to dissolve the corporation at will or upon the occurrence of a certain event;
- The obligation of shareholders to vote their shares a certain way on certain matters, including the election of directors and officers;
- The designation of certain persons as the officers and/or directors of the corporation;
- The rights and responsibilities of the officers;
- The terms and conditions of employment of an officer or other employee of the corporation;
- The determination and payment of dividends or distributions from the corporation to the individuals;
- Various other matters concerning the Board of Directors up to and including even the elimination of the Board of Directors;
- Allowing a shareholder to examine and copy corporate records;
- Prohibiting or limiting the issuance of additional stock or the transfer of shares;
- Arbitration of any issues on which the shareholders are deadlocked;
- Dispensing with the annual meeting of the shareholders;
The benefit of a Close Corporation agreement is to allow the shareholders to establish their rights and responsibilities as shareholders. It also allows the corporation to establish various policies currently and in the future. Therefore, individuals in closely held corporations should consider the establishment of a Close Corporation agreed to provide for the continuity and certainty of various corporate matters, both now and in the future.
Before establishing a Close Corporation agreement, you should contact your attorney and accountant for assistance and learn more about the benefits of a Close Corporation agreement.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.
James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., LPA
158 North Broadway
New Philadelphia, Ohio 44663