Certain licensed individuals or groups can elect to practice as a professional corporation. My personal business is organized in the State of Georgia this way. The specific rule in Georgia is O.C.G.A. § 14-7-1.
Please note that I am not licensed to practice law, this is just my understanding and experience of the law as it relates to me. Get guidance from an attorney if you have questions.
- Certified Public Accountancy
- Land Surveying
- Professional Nursing
- Harbor Piloting
Corporations having 50 or less shareholders may organize or elect to become a professional corporation. If through amendment, at least two-thirds of shareholders must approve. The following must be on each share certificate issued:
“The rights of shareholders in a statutory close corporation may differ materially from the rights of shareholders in other corporations. Copies of the articles of incorporation and bylaws, shareholders’ agreements, and other documents, any of which may restrict transfers and affect voting and other rights, may be obtained by a shareholder on written request to the corporation.”
Unless stated in the articles of incorporation or by the rules that govern (O.C.G.A § 14-2-911 & 912), shares of a close corporation may not be voluntarily or involuntarily transferred. Except to the extent the articles of incorporation provide otherwise, this Code section does not apply to a transfer:
(1) To the corporation or to any other holder of the same class or series of shares;
(2) To members of the shareholder’s immediate family (or to a trust, all of whose beneficiaries are members of the shareholder’s immediate family), which immediate family consists of his spouse, parents, lineal descendants (including adopted children and stepchildren), and the spouse of any lineal descendant, and brothers and sisters;
(3) That has been approved in writing by all of the holders of the corporation’s shares having general voting rights;
(4) To an executor or administrator upon the death of a shareholder or to a trustee or receiver as the result of a bankruptcy, insolvency, dissolution, or similar proceeding brought by or against a shareholder;
(5) By merger or share exchange under Article 11 of this chapter or an exchange of existing shares for other shares of a different class or series of the corporation;
(6) By a pledge as collateral for a loan that does not grant the pledgee any voting rights possessed by the pledgor; or
(7) Made after termination of the corporation’s status as a statutory close corporation.
A shareholder wanting to transfer shares must first offer them to the corporation by obtaining an offer to purchase the shares for cash from a third party. The offer must be in writing and state the offeror’s name, address, number and class of shares, offering price per share, and any other terms.
A third party is eligible to to purchase the shares if eligible to become a qualified shareholder under State or Federal tax statutes and the purchase will not cause a personal holding company or other tax penalty.
Within 20 days of receiving the offer, the corporation shall call a special meeting to decide whether the corporation should purchase the offered shares. Within 75 days of the offer, the corporation should provide written notification of acceptance or the offer is rejected. If the corporation makes a counteroffer, the shareholder must provide a written notice within 15 days to accept or the counteroffer will be rejected.
If an offer to purchase the shares is rejected, the seller can transfer the shares to a third party 120 days after making the offer to the corporation.
Compulsory Purchase of Shares Upon Death
The executor of the Estate may require the corporation (or cause – see above) to purchase or dissolve the shares of the decedent, unless specified in the articles of incorporation.
A person entitled to exercise the compulsory purchase right must deliver a written notice, describing the number and class of shares and a request that the corporation offer to purchase within 120 days of the shareholder’s death to the corporation. See the corporations timeline from the transfer section above.
If the corporation makes an offer, they must include the latest annual and interim financial statements. The corporation’s offer must be accepted in writing within 15 days or it is rejected.
If determined by the articles of incorporation or other written agreement, the price and terms are fixed, unless the purchaser defaults. Under default, the seller is entitled to commence a dissolution.
If an offer to purchase is rejected or no offer is made, the person exercising the right may commence a proceeding against the corporation to compel purchase in the superior court of the county of the corporation’s registered offices. The corporation must notify in writing, at its expense, all of the shareholders and anyone else the court requires ofthe commencement of the proceedings.
The court determines the fair value of the corporation and orders the purchase or dissolution of the corporation. If the corporation does not make a payment within 30 days of the court order, the seller can petition to have the corporation dissolved.
Usually, all costs of the court proceedings are split equally between the corporation and seller. The court may assess a portion or all of the total costs against the seller if the fair value does not exceed the corporations last offer or against the corporation if the fair value exceeds the offer.
All the shareholders may agree in writing to regulate the exercise of the corporate powers and the management of the business affairs of the corporation, and the relationship among the shareholders.
This in effect, (a) eliminates a board of directors, (b) restricts the powers of the board, (c) effectively treats the corporation as a partnership, and (d) creates a relationship among the shareholders and the corporation that would otherwise be appropriate only among partners.
If the corporation has a board of directors, but an agreement exists that restricts their powers, the board is relieved of the liability of the law. The liability is transferred to each person the power is vested.
A provision eliminating the board of directors or entitling one or more shareholders to dissolve the corporation is not effective unless the articles of incorporation or bylaws approved by the shareholders contain a statement to that effect.
The statutory close corporation may operate without a board of directors if the articles, bylaws or other agreements have a statement to that fact. Not having board (allowing the shareholders to manage) and not having the requirement for annual shareholder meetings is one of the main benefits of organizing as a close corporation. An annual meeting is required if one or more shareholders deliver a written request at least 30 days before May 31st or other designated meeting date.
While a corporation is operating without a board of directors (1) all corporate powers are exercised by and under the authority of the shareholders; (2) unless proved otherwise, (a) action requiring director approval is authorized if approved by the shareholders, and (b) action requiring a majority vote of the directors is authorized if the majority percentage of shareholder votes on the action; (3) the shareholders with the powers of the board are liable for the law imposed on directors; (4) a statement that the corporation is a statutory close corporation without a board of directors and that the action was approved be the shareholders; and (5) the shareholders may appoint one or more shareholders as designated directors, allowing to sign documents.
Any amendments to the articles of incorporation eliminating the board of directors must be approved by 2/3 of the votes.
Like with the other corporation structures, liability is limited. Although the close corporations do not observe the usual corporate requirements, that is not a ground for imposing the personal liability to the corporation on the shareholders.
A merger that would terminate the close corporation status or create a close corporation of the surviving corporation must be approved by 2/3 of the votes.
Sale of Assets
A sale, lease or exchange of all or substantially all of the property of the the statutory close corporation must be approved by 2/3 of the votes.
Termination of the Professional Corporation
The corporation can terminate its status as a professional corporation by amending the articles of incorporation to delete the statement that is is a professional corporation. The amendment must be approved by 2/3 of the votes.
The articles of incorporation, bylaws or shareholder agreement may authorize one or more shareholders (or percentage of shares) to dissolve the corporation at will or occurrence of a specified event. Those exercising a dissolution must provide written notice of the intent to dissolve to all other shareholders. 31 days after the effective date of the notice, the corporation can begin the liquidation process.
The Federal Tax Rate is a flat 35% and Georgia Tax Rate is a flat 6% plus net worth tax.