An Illinois close corporation is commonly referred to as corporation that is owned, controlled and managed by a small group of people – most often family members. The Illinois Revised Statutes, on the other hand, hold that only corporations organized as close corporations, or that elect to become close corporations, are called as such. The statutory provisions of an Illinois close corporation can be found in Article 2A of the Illinois Business Corporation Act.
An Illinois close corporation is organized in the same fashion as other Illinois corporations and its Articles must meet all of the requirements established by the Business Corporation Act of 1983 and also certain requirements established by Article 2A – such as the requirement that the Articles must contain a heading declaring that name of the corporation and that is is being organized as a close corporation. The Articles may also contain optional provisions stating that the corporation’s business will be managed by the shareholders (similar to a partnership structure) instead of the board of directors; and a provision granting the shareholders the option to have the corporation dissolved at will or upon the occurrence of a specified contingent event.
It is worth noting that under Article 2A, the Illinois close corporation’s operations and shareholder relationships may be subject to written agreements that must be entered into by all of the shareholders. Nonexhaustive examples of such provisions, which are generally provisioned in the bylaws and/or shareholder managmeent agreement, may include the following:
- Management of the corporation’s business;
- Declaration and payment of dividend or the division of profits;
- Who will be directors, officers, or both;
- Voting requirements, including a unanimity requirement, for directors or shareholders;
- Restrictions on transfer of issued shares;
- Employment of shareholders by the corporation;
- Dispute resolution mechanisms and arbitration; and
- Dissolution and Buy-out events.