How Many Owners Does a Proprietorship Have?
How many owners does a proprietorship have? A proprietorship can legally have only one owner.3 min read
2. How Does a Proprietorship Differ From a Corporation, in Terms of Ownership?
3. How Can Someone Invest in a Sole Proprietorship?
4. How Can Someone Convert a Proprietorship Into a Corporation?
5. Can a Proprietor Transfer Their Business?
How many owners does a proprietorship have? A proprietorship can legally have only one owner. That's because the business serves as part of the business owner's personal identity and vice versa. If a proprietor wants to expand their business and accept new partners and investors, they would have to restructure the company and incorporate it.
What Is a Proprietorship?
A (sole) proprietorship is a business entity that is owned and operated by one person. Sole proprietorships are the easiest types of businesses to start up because they exist automatically when the operator of that business decides to work as their own boss and offer a product or service.
More likely than not, a proprietorship bears the name of the owner, but the proprietor can operate their business under a fictitious name. This fictitious name is also called a "Doing business as," or DBA. To legally use a DBA, the proprietor has to file the DBA with the county in which they will run the business.
How Does a Proprietorship Differ From a Corporation, in Terms of Ownership?
The key differences between a proprietorship and a corporation stem from the number of owners each business can have and the type of investment people can make in the company.
- Proprietorships can legally have only one owner.
- Unlike proprietorships, corporations can have multiple owners, and each of those owners holds shares in the business. By law, corporations are to be set up so their ownership can be shared.
- When corporations are publicly traded, they can raise extra funds by selling more stock. A sole proprietor may receive outside funds, but he or she is not allowed to partner with other businesspersons or attract investors by offering stock.
Not all businesses can have shareholders or stockholders. Most people don't realize this because corporations are so common, they grab most of the headlines, and people often hear about the stock market. It may seem like any company can have shareholders, but that is not the case.
How Can Someone Invest in a Sole Proprietorship?
While no one may buy shares of a sole proprietorship, they can still invest in it by doing one or more of the following:
- Providing direct donations. In many cases, the sole proprietors will ask for startup funds from friends and family.
- Providing low-interest loans to the sole proprietor. The business owner might also get low-interest loans from banks.
- Contributing to a crowdfunding campaign. Sole proprietors might seek help from total strangers by using websites such as GoFundMe, IndieGoGo, Kickstarter, MicroVenture, and Patreon. Most of those websites allow the campaign owner to give gifts (like a finished product) to donors.
- Becoming a partner. This will change the structure and legal status of the business, but a partnership doesn't need to be incorporated. A partner will have some control over the business and share in half of the profits. However, partners risk losing their investment if the business fails.
How Can Someone Convert a Proprietorship Into a Corporation?
If the proprietor wants to convert a proprietorship into a corporation, they will have to restructure the business. Basically, the business owner must do the following:
- File Articles of Incorporation in the state where the business will be located.
- List the number of shares the corporation is authorized to sell in the Articles of Incorporation.
- After the corporation is approved, the sole proprietor must move the assets used for the sole proprietorship to the corporation in exchange for shares in the new company.
- Sell some of those shares to new business partners, who will thus be shareholders in the new company.
Can a Proprietor Transfer Their Business?
While an owner of a proprietorship cannot sell stock in the business, he or she can sell the entire business to someone else. The proprietor may need to include some assets connected to the business as part of the sale, including:
- Physical assets
- List of customers
- The name of the business
- Intangible assets, which are known as the blue sky value or goodwill
In order to make the sale a reality, the proprietor and the seller have to agree on a price and the proprietor needs to issue a bill of sale. In addition, the proprietor may have to legally transfer some items.
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