In California a Closed Corporation is defined by (1) all of the corporation’s issued shares shall be held of record by not more than 35 individuals, and (2) a statement “This Corporation is a Close Corporation."
The benefit of a Close Corporation under the general corporation Law is that, the Close Corporation can avoid most of the normal rules applicable to corporate operations, and the regulations governing the relations between shareholders, directors, and a corporation. Thus, a shareholder’s agreement is permitted and may specify in detail how the business will be managed, how to divide its profits, how to distribute its asset on liquidation, and a number of other matters which will ordinarily be the responsibility and under the control of the board of directors. A Close Corporation can act similar to a partnership without having the liability of a partnership.