Corporations can range in size from large, multi-national businesses to small, sole shareholder businesses. In Maryland, a small corporation can elect to become a “close corporation” in order to simplify management of the business. Normally, a corporation is owned by its shareholders (sometimes also called
stockholders), the board of directors makes big-picture decisions, and the officers operate the corporation on a day-to-day basis. A close corporation can elect not to have a board of directors and to become a close corporation. In that case, the corporation only has (1) shareholders, who own the business and make the big-picture decisions, and (2) officers, who manage the business day-to-day.

Normally, state law includes many requirements for the management and governance of corporations, including a requirement for the corporation to have at least one director. The directors are elected by the shareholders, and the board members are required to meet at least annually and keep meeting minutes, among other responsibilities. Electing close corporation status allows the shareholders to streamline management of the business by getting rid of the board of directors and giving the powers that the board of directors normally has to the shareholders instead. The election to become a close corporation is made when the business is formed by filing the Articles of Incorporation with the Maryland State Department of Assessments and Taxation (“SDAT”). If the business is already formed, then this election can be made by filing Articles of Amendment with the Maryland SDAT.

It's important to make sure that the corporation's bylaws allow the corporation to elect close corporation status; if the bylaws currently do not allow for this, we can draft an amendment to the bylaws that will allow the corporation to elect close corporation status. The decision to elect to become a close corporation must be approved by all of the shareholders. If you'd like more information about close corporations and whether it would be a good option for your business, give us a call.