What Happens to a Close Corporation When the Owner Dies?
A formal definition of a “close” corporation reads a “corporation [that] does not exceed a statutorily defined number of shareholders and is not a public corporation… The main benefit of a close corporation is that it will be exempt from a number of the formal rules which usually govern corporations.”
Close corporation shareholders face tedious requirements for meetings, stock certificates, record-keeping, filings, etc., that apply to any for-profit corporation in Florida, whether there are three shareholders or 1,000 shareholders. The burden of adhering to these formalities is much heavier for small corporations.
If you’re facing any type of corporate or other business entity concern, contact a Florida and Palm Beach County estate planning attorney at Comiter, Singer, Baseman & Braun for help. We understand Florida’s business entity laws and how to avoid detrimental situations and take advantage of beneficial situations.
How to Address the Death of the Owner
The “owners” of a corporation are the shareholders, but the true owner in a small corporation is the majority shareholder. If the majority shareholder does not specifically address what happens to the shares when he or she dies in the corporation’s formal governing documents, such as a shareholders’ agreement, a buy-sell agreement, or its bylaws, then the shares typically pass to the shareholder’s heirs.
This is the key to a smooth transition for the majority shareholder. Letting the corporation pass to the heirs can be a risky proposition. For a close corporation, or even just a small corporation, where there is typically a single majority shareholder and commonly a few minority “silent” shareholders, it is rare that the deceased majority shareholder’s heirs possess the skills, knowledge, and dedication that the deceased shareholder had. Not only is the corporation facing serious risk, but the minority shareholders deserve a better solution.
For these reasons, it is important that the majority shareholder set out how the majority shares should be treated upon death. These instructions need to be a part of the corporation’s governing documents. Although this is important for any corporation, it is particularly important for close or small corporations, because how the shares are distributed commonly determines whether the corporation can continue to exist. Any remaining minority shareholders have no practical recourse if the corporation is run poorly or has to be dissolved.
Let a Florida and Palm Beach County Estate Planning Attorney at Comiter, Singer, Baseman & Braun Help You With Any Close Corporation Issues
For close or small corporations in Florida, there simply aren’t the statutory legal advantages that some other states provide to help close or small corporations function efficiently, which is why it’s critical to take whatever advantages you have. The most important, yet simple, advantage that these corporations have is to simply spell out how shares should be handled upon the death of the controlling shareholder, as well as any other eventualities.
We can help. We understand the challenges faced by close or small corporations in Florida, and we can explain the eventualities that you should address in your corporation’s governing documents. We can also help you craft just the right language for the solutions to these eventualities.
For help with any corporate issues in Florida, contact a Palm Beach County estate planning attorney at Comiter, Singer, Baseman & Braun. You can reach us immediately either online or by phone at 561-626-2101 or toll-free at 800-226-1484. We help clients from all parts of Florida, including Palm Beach County, Boca Raton, and Palm Beach Gardens.