7.Three family members create close corporation. Each family member holds 333 1/3 shares of the total 1000 shares of the corporation. One of the family members unexpectedly dies. What impact does this have on the close corporation?

A.The close corporation is dissolved automatically as a matter of law because of the death of one of the shareholders. This is true because corporations have a limited life and a change in owners destroys the existing business entity.

B.The shares of stock are redistributed in accordance with the close corporation agreement of the parties and the corporation continues in existence. This is true because corporations have unlimited life and the death of a shareholder does not destroy the business entity.

C.The corporation must dissolve. Because the corporation is a close corporation, the other shareholders have no right to the stock at hand, and are obliged to dissolve the corporation and begin a new business entity.

The close corporation continues to exist as a business entity, but it is unable to perform any business function because of the missing owner of 113 of the shares.