Does an Owner in a Company Have to Be a Stockholder?

An owner of a company may not be a stockholder, but the reason would be that the company is not the type that issues shares of stock. Laws and the tax rules allow a company to be organized using one of several business structures, ranging from a sole proprietor to a publicly traded corporation with shares trading on the stock exchange.

What's Your Business?

According to the Internal Revenue Service website, there are five legally recognized business forms. A company can be a sole proprietorship, a partnership, a C corporation, an S corporation or a limited liability company. A sole proprietorship has only one owner. The other business structures can be used by multiple owners to produce a legal and tax outcome that is most beneficial for them.

Corporate Stockholders

Shares of stock represent ownership in a corporation, whether C or S type. Whoever owns any of the outstanding stock of a company is legally an owner. A C corporation can have an unlimited number of owners, and publicly traded corporations such as Apple, IBM or Wal-Mart have many thousands of shareholder owners. A closely held C corporation has a smaller number of owners. The S corporation business structure limits ownership to a maximum of 100 stockholders.

Partners and Members

The owners of a partnership are called partners. There must be at least two partners in this structure, but there can be many. Limited partnership type companies have general partners who run the business and limited partners who participate in the results but have no say in how the business is run. The owners of a limited liability company are called members, and the number of members can range from one to many. The LLC business structure allows a company to run either as a partnership, with the members acting as management, or as a corporation, with the members choosing a management team to run the business.

Your Business Structure

For a small business with a few owners the partnership, LLC or S corp business structures tend to be the most efficient. These business types pass through earnings to the owners, avoiding the double level of taxation a C corporation can be subject to. Owners as stockholders or shareholders applies only to the two types of corporations. For small business, there is little difference in the responsibility or earnings results between a S corp stockholder and a partner or member.