The complicated regulations that govern closely held companies, usually referred to as the 3:12 rule, apply to companies that are owned by a small group of people and they are generally a constant and can be a constant problem for many business owners.

The regulations, which have actually been changed every year or every other year since 1976, stipulate how dividends paid by these companies are to be taxed. There are also dividend regulations linked to the regulations that govern capital gains. Owners should not miss any opportunities for advantageous taxation on dividends if they sell the company without having previously taken out the dividend entitlement.

Three main areas control the effects of the applicable regulations:

  • ownership structure
  • acquisition costs
  • wages, including total wages and salaries and wages paid to shareholders and their close associates