What does ownership of a company mean and what rights does it consist of?
Understanding Ownership
Summary
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Ownership - a bundle of rights
Anyone who starts a business today is sooner or later faced with the decision of having to choose a legal form, a legal framework for the business and its purpose. Through the choice of this legal framework, a decision is always made about the ownership structure of the company and the distribution of the various property rights. This has far-reaching consequences for the company, the stakeholders, the employees and the company culture. However, in the heat of the moment and with so many decisions to be made in the early stages of the company, there is often not enough space and time to consciously decide on a legal form and ownership structure and to deal with the legal and day-to-day implications of this decision.
In order to better grasp the relevance, it is important to take a moment and think about the following question: What is corporate ownership, actually?
The answer: ownership is first and foremost a bundle of rights, which can be combined as well as be separated. How these rights are to be distributed is a fundamental decision that founders and entrepreneurs must make for their companies.
1. Voting rights
The right to control the company and thus the fate of the business. The voting rights in the company represent the steering wheel of the company; here it is decided how and with what value is created and how it is used.
2. Right to profit
The right to extract profits from the business and convert them into personal property, or to receive the "harvest of ownership."
Subsequently, the owner(s) can bequeath, give away, or sell ownership rights in the company and to privatize the proceeds of the sale. Ultimately, the owners are also free to damage or destroy the company (insolvency).
In most cases, a certain form of ownership is unconsciously chosen when a company is founded. The entire bundle of ownership rights is usually issued and distributed without reflection to the shareholders or founders. Whether desired or not, the company thus becomes, from a purely legal point of view, a personal asset of the owners, over which they can fully dispose. From a legal point of view, the company is therefore nothing more than an object, an asset of its shareholders, for which, as with any other objects, all rights of disposal lie with the owners. This often-unconscious bundling of property rights, however, often does not correspond to the wishes and goals of the owners. The examination of the different approaches to alternative ownership structures therefore begins with the conscious consideration of these rights and one's own entrepreneurial needs and desires.
In order to be able to make a conscious decision on the appropriate legal dress for a company, it is worth looking at each of these rights individually and formulating an individual answer for oneself as to which rights should be held by which persons and groups of persons, and for what reasons. Who should hold voting rights and with it the final instance of control? Who should have access to the value created in the company and why? How should these rights be distributed in the future?
Based on this decision, the ownership rights can then be divided among different categories of shares. Today's traditional company shares are a one-size-fits-all solution. Whether founder, investor or consultant, the entire bundle of ownership rights is always issued to the participants. But since this bundle can just as well be separated in its individual parts, all entrepreneurs are free to distribute the rights according to their needs, the vision for the company and the needs of the stakeholders.
Steward-owned companies have gone through exactly this process: they have become aware of the various rights of ownership and then put them together in a way that suits them individually. Steward-ownership is a particular way of dealing with these rights. And there are different shades of gray that allow for the precise fulfillment of entrepreneurial needs. Whether or not steward-ownership is ultimately the appropriate form of ownership for a company thus depends on the examination of the bundle, which has been broken down into its individual parts, and the needs-oriented distribution of rights. This distribution of rights must in turn be adopted and incorporated into the legal form of the company in a later step involving the legal structure.
- See also Prof. Colin Mayer on the history of legal forms in an interview in the Purpose book, pp. 92-99 or in a lecture on Youtube
Published by: Purpose Schweiz
Graphics and illustrations: Purpose Stiftung