Number of Owners in Corporation: Everything You Need to Know
The number of owners in corporation is important when determining the different roles of each owner.3 min read
The number of owners in corporation is important when determining the different roles of each owner. It is also necessary to determine the structure of ownership of the business.
Basic Corporate Structure
Corporations are often made up of three separate groups:
- Shareholders: shareholders own the corporation and are primarily responsible for electing directors. Shareholders are determined when the business is first created and directors are assigned each year.
- Board of directors: the board of directors controls the specific actions of the corporation. The board will regularly meet to discuss major changes including large purchases, contracts, and corporate policy. The board is in charge of assigning officers. Many states limit the number of directors allowed in a business.
- Officers: officers are in charge of the day to day tasks of the business. They are held to their duties by the board directors.
Some small business owners choose to register as a sole proprietorship or partnership. Once an owner makes the decision to incorporate, they become a shareholder of their own business. Some business owners may choose to fill multiple roles. Non-profits, however, may be required to have a minimum of three director members, depending on the state of registration.
Statutory Close Corporations
Some states also have laws that allow business owners to form a close corporation. This allows them to have complete control of their business including voting for new directors. A shareholder agreement that includes a statutory close corporation can offer these rights to the business owner.
It is important to ensure that you are following state laws as a single shareholder. It can be helpful to schedule annual meetings to go over laws, regulations, and to ensure waivers of notice are used.
Publicly Traded Corporations
Publicly traded corporations often have shareholders that are part owners. However, they do not usually engage in the day-to-day activities of the business. Instead, they are expected to be a part of the annual shareholder meeting to conduct the following business:
- Elect new board directors
- Vote on important decisions
- Decisions to sell the business
It is important to note that just because a person owns shares in a business, it does not always mean that they are entitled to make important business decisions. Instead, this ability is decided by the number of shares each shareholder owns and the type of corporation used.
Types of Ownership Structures
There are a few types of ownership structures to be aware of:
- Sole proprietorship: this is when a single business owner serves as the only employee. In this situation, the sole proprietor is liable for the business. Their personal and business finances are not separated.
- Partnership: this business structure involves two or more owners. It means that more than one person has ownership in the business. In terms of liability, it is very similar to a sole proprietorship.
There are many differences between corporations and the other types of ownership structure. The biggest difference is that a corporation can be sued individually from its owners or board members. Another big difference is that the death of the owner can cause the business to disappear. A corporation, however, continues to exist after the death of an owner.
One of the biggest advantages to a corporate structure is that shareholder assets are protected. They can only lose the amount that they have invested in the business. For this reason, they have become one of the most popular types of businesses.
Another advantage is that corporations can raise additional funding by selling shares. Corporations also enjoy tax advantages that are not often offered to sole proprietorships and partnership structures.
It is possible for a self-employed person to register as a corporation. In fact, it might even be advantageous to do because of the following benefits:
- Workers' compensation
- Pension options
- Life insurance coverage
- Medical coverage
- Stock options
The taxes on a corporation may be as low as 30-50 percent lower when compared to a sole proprietorship structure. This is one of the most common reasons for registering as a nonprofit corporation structure.
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