For Texas franchise-tax purposes, could a trust, partnership, association, corporation, or employee stock-plan trust count as one shareholder of a close corporation?

Plain-English summary

For franchise-tax purposes, a close corporation's shareholders were not limited to natural people. An express trust, partnership, association, or corporation could own its stock.

Each such entity counted as one person for the shareholder limit, provided it had not been organized or created primarily to hold stock in the close corporation. An employee stock-option plan organized as a trust generally counted as one shareholder under the same principle, though the Comptroller would examine the plan's actual terms case by case.

Common questions

Could a corporation count as one shareholder? Yes, if it was not created primarily to hold the close corporation's stock.

Could an employee stock-plan trust count as one? Generally yes, subject to the plan terms.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9004L1039F12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller

April 30, 1990

Dear **:

This is in response to your franchise tax inquiry concerning
close corporations and the 35 shareholder requirement.

For franchise tax purposes, "shareholder" is not limited to
natural persons. An express trust, partnership, association,
or corporation may own stock in a Texas close corporation.

Shares held by an express trust, partnership, association, or
corporation will be treated as being held by one person.
These shareholders, however, must have been organized and
created other than for the primary purpose of holding stock
in the close corporation.

As a general rule, an employee stock option plan would be sub-
ject to the above guidelines (i.e., a stock option plan set up
as a trust which held the stock of the corporation would be
treated as one shareholder). Beyond these general guidelines,
each case will be determined on the basis of the terms set out
in the stock option plan.

This opinion is based on the facts presented. If there are
different or additional facts, the opinion may change.

Thanks for your patience while we were working on this inquiry.
If you have any questions, please call 1- 800- 531- 5441 (toll-
free) or my direct number (512)463- 4496. Our FAX number is
(512)475-0900.

Sincerely,
Jerry Bobbitt
Legal Services Division, Taxability Section