A business owner is an individual or an entity who owns and operates a business. They are accountable for the governance, operation, compliance, and profits of the business. As per the legal definition, business owner is a person, corporation, or a group who holds legal and exclusive ownership to the assets of a firm and uses it to profits from it.
What does it mean?
- The owner can be the same person or a group of people who are the primary or lead stakeholders to a business. They are responsible for maximizing the overall value of the business.
- The business owner may or may not be engaged with the day-to-day operations of the business.
- Depending on the size of the company and its industry, the business owner has a defined job description and can earn a wage but is not considered an employee.
- Some of the vital tasks an owner performs are defining the vision and direction of the business, developing, or overseeing the business and financial plan, mentoring staff, and communicating with key stakeholders.
For example, Lisa decides to create a social media marketing company and borrows some money from her aunt to invest in the business. She already has some experience working with a larger marketing corporation after college.
She hires an office space in the city center, purchases inventory such as laptops and furniture, and employs 5 young individuals. She manages the operations, staffing, and training. For maintaining the finances of the company, she hires an accountant on a part-time basis.
At the end of the first year, Lisa has five clients and has submitted proposals to 2 new clients. She is happy with her progress and has paid back her aunt. With the rest of the profit, she decides to invest to update the office equipment and hire a manager to help her with the operation of the business.
What does a business owner do?
1. They set the vision and strategy
- A business owner goes into business with an idea, a product, a service, or a big picture in mind. These preliminary ideas serve as the vision and direction of the business.
- Over the years the owner revisits the early vision to analyze if it requires any adjustment concerning internal or external changes.
- The owner communicates the vision to his teams to encourage ownership and work towards achieving common goals.
- He might also involve employees in discussions to set specific objectives to reach common goals. It is better to involve employees to create ownership however this may differ with owners, companies, or industry.
For example, The vision of Facebook is to ‘connect with friends and the world around you on Facebook’, for Teach for America it is ‘One day, al children in this nation with have the opportunity to attain an excellent education and for Microsoft, during its founding, its vision was ‘A computer on every desk and in every home’.
2. They hire, Train and Manage Staff
- Business owners may be required to hire, train, and manage their staff. Some organizations appoint human resource professionals or accountants to handle these activities and related tasks such as taxes, benefits, reporting, and accounting.
- The owner should also know the federal and state laws and regulations affecting their employees or hire professionals to do it for them.
- Staffing management also might require them to train, mentor, and develop the existing staff.
3. They plant and Cultivate the work culture
- Work culture comprises of the beliefs, values, attitudes, and thought processes that contribute to a distinctive social and psychological environment of a business.
- The owners’ core beliefs and values set the standards and influence the work. As employees join the organization, they get influenced by these ideals, embrace, and share it with others in the organization.
- However, owners should also lookout for signs of a toxic work environment which can be counterproductive to the organization’s growth.
For example, Twitter as a company is loved by its employees for its work culture which involves rooftop meetings, open dialogues with management, on-site gym, free food, and others. The culture is built on a casual, friendly, and learning-based environment.
4. They operate the company
- Business owners are responsible for carrying out daily operations. That means putting together a business plan to function as a roadmap.
- If the business is a product manufacturer, the owner must put processes and systems in place, figure out the supply chain, find the right location for business, and so on.
- Over time, they may delegate these responsibilities to select a set of managers and oversee their developments.
5. They sell
- It takes some time before sales become part of the employee’s job description. Till then, the business owner is the one source for selling- he approaches future clients and goes on sales calls.
- The owner might hire staff eventually for this specific purpose but might still be involved in the bigger deals.
- In the early days, he even gets involved in marketing through campaigns, advertisements, or emails.
- It also includes being responsible for customer satisfaction by answering queries on call, manning live chats, or calling for feedback.
For example, In the early days, Airbnb founders were trying to reach out to non-U.S. destinations. They physically visited half of the French cities or towns, talked to few users already in the market, set up information gatherings, threw parties, posted flyers, and set up booths to sell the concept to their clients.
6. They manage finance
- Business owners establish budgets, sales forecasts, profit & loss statements, and keep the accounting system up to date.
- They review sales reports, expenses, sales activities, bank statements, and collect overdue accounts invoices. They also invoice their customers whenever a sale is made.
- Owners are overall responsible for the financial health of the business.
Types of Business Ownership
In this section, we look at the common types of business ownership
1. Sole proprietorship
- It is the most common form of business ownership in the United States. It is a business owned and operated by a single individual, who is responsible for all the business functions such as accounting, marketing, production, and management.
- The business owner can operate under their name or use a trading name. However sole proprietorship is not considered a legal entity, which means the owner has unlimited liability and is personally liable for all the business debts.
- In case, the business runs into financial trouble or is pressed with a lawsuit by its creditors, the business owner is personally liable for it.
- The income earned by the business is considered income earned by the owner and he is taxed accordingly.
For example, Pierre Omidyar launched eBay as a concept when his girlfriend was trying to sell old Pez dispensers and other collectibles. He realized like his girlfriend there was a huge community of people interested in selling used merchandise but no platform for it.
- The least used form of business in the United States. It is a business that is owned and operated by two or more people. The three common forms of partnerships are general partnership, limited partnership, and limited liability partnership.
- In a general partnership, every partner holds unlimited liability, and every partner is considered as participating in the operations of the business.
- In limited partnership at least one is a general partner taking on unlimited liability and managing the operations. While the limited partner has only liability limited to his financial stake in the business. This partner does not have any direct control over the business or is part of management decisions.
- In a limited liability partnership, multiple partners are responsible for managing the operations however they are not personally responsible for the business debts or actions of other partners. This kind of partnership is restricted to professionals such as lawyers or accountants.
- The benefits of partnership ownership include ease of organization which means that it is easy to form the organization by simply creating the articles of partnership, availability of funding, fewer government regulations, and support by another partner.
- The disadvantages include unlimited liability, partner disagreements, sharing profits, and a limited life span. The partnership is considered ended if a partner dies or withdraws.
For example, HP began as a partnership between Packard and Hewlett in 1939 and was founded as Hewlett-Packard (HP). They had begun work in 1938 in a rented garage with an initial capital of a few hundred dollars. Famously, they tossed a coin to decide whether they will call the company Hewlett-Packard or Packard-Hewlett.
3. Limited Liability Company (LLC)
- An LLC combines aspects of both partnerships and corporations.
- It exits as its legal entity which means the owners have limited liability and are not personally liable for the actions or debts of the business.
- They enjoy the tax benefits of sole proprietorships which implies the LLC is not considered separate from its owner and they are taxed at their tax rates.
- LLC’s are known to be quite flexible and benefits include less paperwork, not required to keep extensive records or hold annual meetings. In many states, they do not even have to file annual reports.
For example, a few years back Google changed from a corporation to a limited liability company.
- It is a legal entity that is created by its shareholders with a common goal and vision.
- The owners are personally not liable for the company’s debts or legal issues. It is the company which is responsible in this case.
- However incorporating isn’t that easy in comparison to other forms of business ownership, as it involves excessive paperwork such as drafting of articles of incorporation, providing information about the number of company shares to be issued, and to whom, the purpose of the business, its name, and location.
- While in other forms of ownership the company is dissolved if an owner dies, withdraws, or declares bankruptcy. Incorporations, they are protected from such situations and continue to exit with other owners.
- The three main types of corporations include C corporation, S corporation, and Non-profit corporation.
- The C corporation is the most utilized form of incorporation where the corporations are taxed as a business unit and owners are taxed individually depending on the profits they receive.
- The S corporation works similarly as C corporations, but they are required to file taxes yearly and are not subjected to double taxation like S corporation owners. However, this form of incorporation is only restricted to U.S. citizens and permanent residents.
- Non-profit Corporations are formed by a charitable organization and are tax-exempt due to their nature of work. However, they are required to their cash flow for the operation of their organization or plans.
For example, Jacks Inc. a globally recognized manufacturer and distributor of the Equine Industry’s finest products is formed as an S corporation in the state of Florida. While Coco cola is a famous C corporation. The American Red Cross is one of the largest nonprofit entities in the United States which provides disaster relief and saves thousands of lives every year.
- A business owner is a person, corporation, or a group who holds legal and exclusive ownership to the assets of a firm and uses it to profits from it.
- The business owner may or may not be engaged with the operations of the business.
- They have a defined job description and perform vital tasks such as defining the vision of the business, developing, or overseeing the business and financial plan, mentoring staff, and communicating with key stakeholders.
- The most common types of business ownership are sole proprietorship, partnerships, limited liability companies, and corporations.
What is the job of a business owner?
A business owner is a person, corporation, or a group who holds legal and exclusive ownership to the assets of a firm and uses it to profits from it. The job of a business owner typically includes defining the vision of the company, developing, or overseeing the business and financial plan, mentoring staff, and communicating with key stakeholders.
2. What are the benefits of being a business owner?
There are many benefits to being a business owner, including less paperwork, not being required to keep extensive records or hold annual meetings, and in many states, they do not even have to file annual reports. Additionally, owners of businesses are not personally liable for the company's debts or legal issues, the company is responsible in this case. Other benefits can depend on the type of business ownership. For example, in a corporation, the owners are protected from situations such as the death of an owner, withdrawal, or bankruptcy.
3. How do I become a business owner?The process of becoming a business owner can vary depending on the type of business and its location.
Typically, you must register the company with the state and obtain a tax ID number. You may also be required to file articles of incorporation, provide information about the number of shares to be issued, and to whom they are issued. In addition, you may need to create bylaws, a shareholder agreement, and/or an operating agreement.
4. What are the types of business ownership?The common types of business ownership are the following:
1) Sole proprietorship - This is the most common type of business, in which one individual owns and operates the business.
2) Partnership - In a partnership, two or more individuals own and operate the business.
3) Limited liability company (LLC) - An LLC is a hybrid type of business that offers the limited liability of a corporation and the tax benefits of a partnership.
4) Corporation - A corporation is a separate legal entity owned by shareholders. The shareholders are protected from personal liability for the company's debts and legal issues.