The Miller family, who operates a musical instrument manufacturing concern, has decided to incorporate. The three (3 ) members of the Miller family, Mary, Mark and Sue, would like to become a corporation and obtain limited liability; however, taxation

Question

at the corporate level would be very costly for them. If possible, Mary Miller would rather be taxed as a partnership. Mark Miller is worried about the additional paperwork and meetings that incorporation would surely bring. Sue Miller does not want a large board of directors to be formed. Sue fears that the board would somehow detract from the family goals and orientation the business has always enjoyed. In light of these concerns, is there a corporate form that would better suit the Miller family?

Answer 1

?Yes. When a small family company decides to incorporate, the form often selected is that of a close corporation. In a close corporation, the shares are held by one shareholder or a closely-knit group of shareholders. The stock would not be publicly traded. Statutes are quite liberal toward the formation of close corporations. The board of directors could consist of one individual, and the requirement of formal meetings would be eliminated. A close corporation could also seek the status of a "Subchapter S" corporation. In a Subchapter S corporation, the business would be afforded limited liability and yet would be taxed as a partnership. The combination of a close and a Subchapter S corporate form would satisfy the needs and concerns of the Miller family.