What Is the Difference Between a Shareholder and Ownership Interest in Corporation?
Corporations are often the vehicle of choice for entrepreneurs who want to raise money to capitalize and expand their businesses. The corporate structure and the protections it provides, in addition to the amount of business case law that exists, makes corporations attractive to potential investors and co-owners. Owners in a corporation are shareholders. As owners, shareholders have an ownership interest in the corporation.
Shareholders, or stockholders, own shares in a corporation. As a shareholder, you may own one share or thousands of shares. In the past, corporations issued stock certificates denoting the number of shares you owned. However, in more recent years, most private corporations simply track who owns what number of shares. You may be the sole shareholder or one of thousands. In the United States, there are generally no restrictions on who can be a shareholder. A shareholder can be an individual, a partnership, an LLC or another corporation, a U.S. citizen or a foreigner.
An ownership interest is how much of something you own. A share indicates how much ownership you have in a corporation. For example, if a corporation issues 10,000 shares and you own 1,000 shares, you have a 10 percent ownership interest in the corporation. If you own all 10,000 shares, you are the sole shareholder and have a 100 percent ownership interest. If you own 1,000 shares in a publicly traded corporation, your ownership interest may be less than 0.1 percent.
With corporations, it is relatively easy to sell your ownership interest compared to other business forms. With publicly traded corporations, you can execute a trade online or with your broker and sell your shares almost immediately. With private companies it takes more effort. A shareholder's agreement may exist that limits who you can sell to or when you can sell. In addition, because information is not publicly or readily available, it takes more effort to find interested buyers and provide them with the information they need to decide they want to buy.
Some private corporations have buy-sell agreements that outline ownership transfer rights. In addition, corporations may repurchase shares from shareholders using a predetermined calculation. That calculation is typically included in the buy-sell agreement. When you transfer or assign your shares in a corporation to someone else or to another entity, you transfer your ownership rights by signing over your shares. You are no longer the shareholder. The person or entity you transferred the shares to becomes the shareholder.