Silver Spring, MD asked in Business Formation for Maryland

Q: In Maryland, can a close corp be amended or corrected to be a stock corp set up my business as a close corp (their error) and they sent an amendment to the state of Maryland to change it to a stock corporation. The state of MD accepted the amendment but it still says "close" on their website. So is it possible to change a close corp. to a stock corp by amendment or similar means (without jut starting the whole process over? Thank you.

Related Topics:
1 Lawyer Answer
Mark Oakley
Mark Oakley
  • Rockville, MD
  • Licensed in Maryland

A: Electing "close corporation" status does not alter the fact that a close corporation is also a "stock" corporation, as you put it. The benefit of electing "close" status is that a smaller corporation with fewer stockholders can maintain corporate status and management without having to observe all the corporate formalities of a regular corporation. For instance, there is no need for a board of directors or that annual stockholder meetings be held. The individual stockholders simply run the company as they see fit. Before the invention and adoption of the Limited Liability Company Act, Close Corporations were the preferred entity form for small businesses due to their streamlined management and operation. The LLC has largely supplanted traditional stock corporations for most small businesses because of the ease of management, tax treatment, and costs of operation (e.g., no corporate income tax return). However, corporate status does have other benefits depending on the nature of the business and number of employees. It is unclear why you chose to be a corporation over an LLC, and it is also unclear why you prefer NOT to be a Close corporation, but the election to remove Close status is simple and is accomplished by filing an amendment to the corporate charter. Since you used rocketlawyer, however, I assume you chose your business entity without consultation with a lawyer or even a tax professional, and so you likely were not fully informed about what type of entity, and what options as far as tax elections (e.g., Subchapter S), would be best for you. I suggest you set up a consultation with a lawyer to go over your status and how to best proceed.

Justia Ask a Lawyer is a forum for consumers to get answers to basic legal questions. Any information sent through Justia Ask a Lawyer is not secure and is done so on a non-confidential basis only.

The use of this website to ask questions or receive answers does not create an attorney–client relationship between you and Justia, or between you and any attorney who receives your information or responds to your questions, nor is it intended to create such a relationship. Additionally, no responses on this forum constitute legal advice, which must be tailored to the specific circumstances of each case. You should not act upon information provided in Justia Ask a Lawyer without seeking professional counsel from an attorney admitted or authorized to practice in your jurisdiction. Justia assumes no responsibility to any person who relies on information contained on or received through this site and disclaims all liability in respect to such information.

Justia cannot guarantee that the information on this website (including any legal information provided by an attorney through this service) is accurate, complete, or up-to-date. While we intend to make every attempt to keep the information on this site current, the owners of and contributors to this site make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in or linked to from this site.