Who Owns a Corporation: Everything You Need to Know
If you want to know who legally owns a corporation, you can search through various public records to identify the owner(s) of a business.3 min read
If you want to know who legally owns a corporation, you can search through various public records to identify the owner(s) of a business. Specifically, a corporation is a type of legal business structure that requires several ongoing corporate formalities along with complex tax rules.
Corporation: An Overview
All states recognize a corporation as a distinct legal entity, meaning that it operates separately from its owners. A benefit of this is that the owners of a corporation can’t be held personally liable for any business debts, which is one of the biggest advantages of operating a corporation. When it comes to forming this type of legal business structure, most states require you to file the articles of incorporation, or something similarly named, with the Secretary of State. After you complete the necessary steps for forming your corporation, you might find people asking, “Who owns your corporation?” Believe it or not, this is a common question among such businesses, particularly due to the fact that a corporation can consist of one shareholder or hundreds of thousands of shareholders.
But who really owns the business? This answer depends on the state in which you choose to incorporate. Some might argue that the shareholders own the corporation because they have a vested interest in the corporation through shares, voting rights, and other ownership qualities. However, others might argue that a corporation can’t be owned since it operates as a separate legal entity from the shareholders.
A shareholder is someone who owns shares in a corporation. Generally, corporations are owned by several shareholders. For example, Google is a publicly traded corporation with almost half a million shareholders. Other corporations are closely held, meaning that there are only a few shareholders.
While an argument can be made that corporations can’t truly be owned, it is widely agreed upon that the shareholders of the corporation are owners, but not legal owners. Legal ownership means having the ability to make actual business decisions or use the company’s assets. The shareholders aren’t the actual true owners of the business. While they aren’t legal owners, they are still considered owners due to their ownership in stock.
Such ownership will depend on the percentage of shares that each person carries in the corporation. For example, someone who holds 51% of the shares in a corporation owns a controlling interest in it; therefore, he or she has greater voting and other decision-making power.
The shareholders have the following rights:
- The right to receive a portion of the corporation’s net revenue
- The right to vote on the board of directors
- The right to inspect corporate records
- The right to sue for wrongful acts committed by the board, i.e., breach of fiduciary duty, fraud, illegal conduct
- The right to sell their stock
- The right to dividends
- The right to purchase more stock if another public offering is made
With regard to the second right, all shareholders have a right to vote for who will be on the board, giving them some sort of oversight as to how the business will be run, as they run the company for the benefit of the shareholders. Additionally, as noted above, if a shareholder owns a significant amount of shares in the business (i.e., 51%), then he or she might even be able to appoint the board alone.
If a shareholder wants to sell his stock to another person, but still holds beneficial ownership over the shares, he can do so by turning over the rights to his shares without turning over title. If this occurs, the third party will be the registered owner of the stock, but there is a document that will specify the original shareholder as the true holder of the shares. This also means that the original shareholder will continue to have the above-mentioned rights as all other shareholders.
Board of Directors
While the shareholders are termed “owners” in a corporation, the board of directors make the business decisions for the corporation. Keep in mind that anyone sitting on the board doesn’t necessarily have to own any shares in the business.
If you need help learning more about corporate ownership, or if you need help forming your corporation, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.