California  |  Business Law

Legal Question

Asked on: 6/25/13, 4:46 pm

I want to form a corporation in CA and elect to be taxed as an S Corp. I eventually want to grow my business to be public traded. Does it matter if I choose close corp or general stock when filing my articles? What are the ramifications of each?

2 Answers


Answered on: 6/25/13, 5:52 pm by Jim Betinol

The short answer is yes, it does matter whether you choose a close corp or a general stock, as well as your election to be an S-Corp.

A Close Corp as well as electing to be an S-Corp has limitations on the number of shareholders you can have as well as who those shareholders can be. As an publicly traded company, the restrictions on the number of shareholders will definitely be problematic. However, it doesn't mean that you cannot switch to a General Corporation later on.

I would recommend that you contact an attorney in your area to review your plans and to help you decide on the best business entity for your current situation. Depending on your business goals and how quickly you expect to reach IPO, an attorney can assist you with how best to structure your business.

Goodluck,

Jim Betinol


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Answered on: 6/26/13, 9:39 am by Bruce Beal

Both close and S-corps have limitations on numbers of shareholders. You can undo both of them at some point. Your angel investor or venture capitalist will have their own requirements.


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