Proof of Business Ownership: Everything You Need to Know
Proof of business ownership is often required to prove that a sole operator has ownership in a business.3 min read
Updated July 6, 2020:
Proof of business ownership is often required to prove that a sole operator has ownership in a business. There are a few ways to prove business ownership through the use of business documents and tax forms. There are also a few reasons why someone would require proof of business ownership.
Proof of Business Ownership
One of the most common situations for needing proof of business ownership is opening a bank account in the business's name. Many banks require that the person opening the bank account be listed as the owner of the business and the owner of the businesses legal documents.
The problem, however, is that the articles of organization are often drafted in a way that might not clearly indicate the owner of the business. In both LLC and corporation documents, the person filing the documents is listed as the organizer. The organizer does not always indicate the business owner. The organizer can be a member, partner, or even the attorney filing the documents on behalf of the business.
Instead, the owner is indicated as a shareholder or member. The following members have the authorization to open a business banking account:
- Chief manager
Some cases require opening an account with the branch manager or choosing a business banking institution that is familiar with the necessary articles of organization.
Proof of Sole Proprietorship Ownership
A sole proprietor is someone who owns a business individually. They have not separated the business from the owner's tax or legal liabilities. It is possible that the business is under a different name than the individual, often known as a doing business as (DBA) name.
Proof of sole proprietorship ownership can be accomplished with:
- A copy of the owner's tax return with the Schedule C included.
- A copy of the DBA proving that the individual established the alternative business name.
Proof of Corporation Ownership
There are two separate types of corporation ownership, and this affects the type of proof that is needed.
An S Corporation is closely aligned with a sole proprietorship. The business owner uses their own tax ID number to claim the business's profits and losses. S Corporation owners can prove business ownership with the following documents:
- A copy of their personal tax returns.
- The articles of incorporation with the stock information included.
A C Corporation has a separate tax ID number, also known as an employer identification number (EID). C Corporation owners can use the following to prove business ownership:
- Stock ownership documents.
- Share certificates issued by the corporation.
- Additional documents like liquor license applications, financial contributions, and contract agreements may also be used for smaller businesses without share certificates.
Proof of Limited Liability Company Ownership
Limited liability companies are similar to corporations and partnerships. LLC business owners might use their own tax ID numbers but have created a formal business to reduce their personal liability. An LLC business owner might also use an EIN number for tax purposes.
Proof of limited liability company ownership requires the articles of organization, which lists the establishing members of the business
Stock Certificates and Share Ledgers
Stock certificates and share ledgers are often used to prove business ownership. While stock certificates are commonly used in larger corporations, they are often not available in smaller corporations. This can make it difficult to prove ownership in corporations based on stock certificates, especially of minority shareholders.
However, stock certificates are also not always indicative of business ownership. They are only a small piece of the business ownership proof.
Proving Ownership in a Business Without Certificates
Although it is unethical and legally dangerous to deny ownership in a corporation, it does occur. It can be difficult to prove ownership in a business without the certificates present. When there are no business certificates available, the plaintiff must prove contractual transaction occurred.
If the plaintiff can demonstrate that performed obligations were met to become a full stockholder in the business, they might have a case. The documents that are often used as proof of business ownership when certificates are not available include the following:
- IRS form K-1
- Business emails
- Business meeting minutes
- Business resolutions
- Other business records
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