A close corporation in Florida is a small, closely held corporation that runs more like a partnership: a handful of owners, restrictions on who can buy shares, and fewer corporate formalities, while keeping a corporation’s liability protection. It suits family businesses and small partner groups that never plan to bring in outside investors. For most small Florida businesses, though, an LLC gets you similar benefits with less setup.
What is a close corporation in Florida?
It’s a corporation built for a small group of owners who know each other. Instead of the usual board of directors, officers and formal annual meetings, the owners can agree to manage the business directly.
The typical features:
- A small number of shareholders
- Shares that can’t be freely sold to outsiders
- Relaxed formalities, sometimes with no board of directors at all
- Shareholders managing the business directly
- A shareholders’ agreement that governs the company much like a partnership agreement
Florida doesn’t set a statutory maximum on the number of shareholders. These arrangements are designed for small groups.
How is a close corporation different from a regular corporation?
| Feature | Close Corporation | Regular Corporation |
|---|---|---|
| Board of directors | Optional (can eliminate) | Required |
| Annual meetings | Can be informal | Formal requirements |
| Share transfers | Restricted | Generally unrestricted |
| Shareholder group | Small, closely held | No limit |
| Stock offered to public | Not allowed | Allowed |
| Management | Shareholders can manage directly | Board/officer structure |
| Formalities | Reduced | Full corporate formalities |
The trade is simple. You get operational simplicity and keep the liability protection, but you give up easy access to new owners and outside money.
Who should consider one, and who shouldn’t?
It fits family businesses that want to keep ownership in the family, since transfer restrictions stop outsiders from acquiring shares. It also fits a few trusted partners who want corporate protection with partnership-style management, and solo owners who want a corporation without formal board meetings. The common thread is that nobody plans to sell shares publicly or raise venture capital.
It’s a poor fit if you’ll be raising money. Venture capital and angel investors typically want standard corporate structures, and a fast-growing startup will run into the transfer restrictions quickly. If you plan to go public or expect a large ownership group, skip it.
What are the pros and cons?
What you gain. You can do without a board and let shareholders make decisions directly, without formal board meetings and resolutions. You have more flexibility on meetings, record-keeping, resolutions and officer positions, though keeping good records is still a smart idea. Transfer restrictions mean nobody can sell shares to an outsider without consent. Shareholders can share management duties, split profits in any agreed ratio and decide things jointly. And you still have a corporation’s liability protection, so personal assets are generally protected from business debts and lawsuits.
What you give up. Bringing in investors, offering stock options to employees or growing the ownership group gets difficult. Shares are hard to sell, which can trap a shareholder’s investment and lead to disputes. With a few owners managing directly and no board to break ties, a disagreement can paralyze the business. Some banks, vendors and partners are less familiar with the setup and may need it explained.
Deadlock is the one we’d plan for first. A two-owner company split 50/50 with no tie-breaker has no way forward when the owners disagree.
How do you set up a close corporation in Florida?
- Form a standard corporation by filing Articles of Incorporation through Sunbiz.org. The filing fee is $70.
- Put share transfer restrictions in your Articles, or amend existing Articles to add them.
- Sign a shareholders’ agreement that sets out how the company will be managed. This is where the flexibility actually comes from.
- Issue stock certificates with a legend noting that the shares are subject to transfer restrictions and referring to the shareholders’ agreement.
The exact wording for the Articles and the agreement should come from a Florida business attorney. Transfer restrictions that aren’t drafted properly may not hold up when you need them.
What goes in the shareholders’ agreement?
The agreement is the foundation of the whole arrangement. It typically covers:
- Management: who makes daily decisions, what needs unanimous consent, whether shareholders can delegate to a manager, and whether there’s a board at all.
- Money: how profits are distributed, what salaries working shareholders receive, how capital contributions work, and what happens if the business needs more money.
- Transfers: a right of first refusal for the corporation or other shareholders, any consent requirements, people who can’t receive shares, and how shares are valued for buyouts.
- Exits: buyout triggers such as death, disability, retirement or divorce, how buyouts are funded (life insurance or installment payments), non-compete terms, and when the corporation can be dissolved.
- Disputes: mediation or arbitration requirements, a deadlock-breaking mechanism, and buyout rights for disputes that can’t be resolved.
Close corporation or LLC: which is better in Florida?
| Feature | Close Corporation | LLC |
|---|---|---|
| Liability protection | Yes | Yes |
| Management flexibility | High (by agreement) | High (by default) |
| Formality requirements | Reduced (by agreement) | Minimal by default |
| Default taxation | C Corp (double taxation) | Pass-through |
| S Corp election | Available | Available |
| Formation cost (FL) | $70 | $125 |
| Annual report (FL) | $150 | $138.75 |
| Ownership terms | Shareholders with stock | Members with interests |
| Familiarity | Less common | Very common |
For most small Florida businesses, we’d pick the LLC. It gives you the flexibility by default, while a close corporation needs carefully drafted Articles and a shareholders’ agreement to get there. A close corporation makes sense when you specifically want to be a corporation, for example because you want stock, or the “Inc.” designation, or you have other reasons to prefer a corporate structure.
How do you keep the arrangement working?
Keep the shareholder group small, enforce the transfer restrictions, put the legend on every stock certificate, follow your shareholders’ agreement and file your annual report on time. Don’t offer stock to the public.
If those restrictions lapse, you’re effectively running a regular corporation, with full corporate formalities. You may need to set up a board and officer positions quickly, and decisions made without them could be questioned.
How is a close corporation taxed?
By default it’s taxed as a C corporation: the corporation pays income tax on profits, and dividends are taxed again to shareholders.
Most close corporations benefit from electing S corporation status by filing IRS Form 2553. That gives you pass-through taxation and avoids the double tax, as long as you meet the S corp requirements. If you’re a shareholder who also works in the business, you must pay yourself reasonable compensation before taking distributions.
Frequently asked questions
Is a close corporation the same as an S corporation?
No. A close corporation is a corporate structure under state law. An S corporation is a tax election with the IRS. A close corporation can elect S corp tax status.
How many shareholders can a close corporation have?
Florida doesn’t specify a maximum in statute. The structure is meant for a small group of owners.
Can a close corporation have one shareholder?
Yes. A single person can form and own one.
What if a shareholder wants to sell their shares?
The transfer restrictions in your Articles and shareholders’ agreement control this. Typically the other shareholders get a right of first refusal before shares can go to an outsider.
Can a close corporation become a regular corporation?
Yes. You can amend your Articles of Incorporation to remove the transfer restrictions.
Not sure a close corporation is right?
If you’re weighing it against an LLC, start with one question: does anyone involved actually need to own stock? If the answer is no, the LLC is usually the simpler path.
Need help deciding the right structure? IncCraft can help you choose between LLCs, corporations, and close corporations based on your specific business needs.