Chapter Fifteen
Corporate Variations
Close Corporation
Corporation whose shares are held by a small group
that is active in managing the corporation. (Also
called statutory close corporation)
Characteristics of a Close Corporation
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Limitation on the number of shareholders
The shareholders typically enter into agreements
restricting the transfer of shares
All or most of the shareholders participate in the
management of the corporation
Nonprofit corporation
Corporation formed for a purpose other than to earn
profit (also called not-for-profit corporation)
Types of nonprofit corporations:
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Religious corporation
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Public benefit corporation
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Mutual benefit corporation
Parent and Subsidiary Corporations
Parent: A corporation that forms another
Subsidiary: A corporation formed by another
Professional Corporation
The incorporation of the practice of a professional,
including a doctor or lawyer (also called
professional association)
S Corporation
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Corporation whose income is not taxed at corporate
level but is passed through to its shareholders who
pay taxes at their own rates
Criteria for S Corporation
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Generally has a calendar year as its tax year
Only one class of stock
Not a bank, insurance company, or domestic
international sales corporation
All shareholders consent to the election
Slide 2 of 2
Publicly Traded Corporation
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SEC: Securities and Exchange Commission; federal
agency charged with regulation of securities
1933 Act: Act requiring registration before
issuance of securities through interstate commerce
1934 Act: Act governing resale of securities after
their initial issuance
Going public: Sale of shares to the public at large
Key Features of Other Corporations
A close corporation is a smaller corporation
owned and operated by a group of family
and/or friends. There is usually a limit of 50 or
fewer shareholders who enter into agreements
restricting the transfer of shares. Close
corporations are generally allowed less formality
in operation than other business corporations.
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Slide 1 of 4
Key Features of Other Corporations
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A nonprofit (or not-for-profit) corporation is one
formed not to earn a profit but for some
charitable or religious purpose or for the mutual
benefit of its members. Stock is not sold.
Memberships are often granted to the members
of the nonprofit corporation. If nonprofits apply
for and are granted tax-exempt status, they need
not pay federal taxes. Contributions made to
charitable or religious nonprofits are generally
tax deductible, whereas contributions made to a
mutual benefit nonprofit are deductible only if
they are valid business expenses.
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Key Features of Other Corporations
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A subsidiary corporation is one formed by another, the
parent. The parent either owns all of the stock of the
subsidiary or the vast majority of it. A parent will be
liable for a subsidiary’s debts only if it dominates and
controls the subsidiary such that they do not operate as
two separate corporations.
A professional corporation is formed by a group of
professionals, such as doctors or lawyers. The
professionals retain liability for their own acts of
negligence and for those performed under their
supervision and authority. The corporate form has been
selected for certain tax advantages and benefit plans
available to corporations.
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Key Features of Other Corporations
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An S corporation is not a different type of
corporation but is a corporation that has qualified
for special tax treatment such that none of its
income is taxed at the corporate level but is passed
through to the shareholders who pay tax at their
appropriate brackets. An S corporation is limited to
100 shareholders who must all be individuals.
Slide 4 of 4
Key Features of Other
Corporations
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Securities (stocks and bonds) may not be offered
for sale to the public unless they are either
registered with the SEC or exempt from registration.
The Securities Act of 1933 governs the initial
issuance of securities, and the Securities Exchange
Act of 1934 governs resale of securities and
reporting by public companies.
States regulate the sale of securities through their
state laws, called blue sky laws.