Companies or corporations are one of the most advanced business structures that exist. They provide the base for many other types of business structures. Furthermore, there are various advantages that this business structure has over others. These are also features that investors or owners prefer.

Companies have unlimited liability, which means owners only have to bear liability for their share of a company’s ownership. They also come with a better tax advantage compared to others. Most importantly, however, companies offer a better ownership structure. This structure comes through shares, which are easily tradeable compared to other forms of ownership.

Most investors prefer investing in companies as they offer better flexibility over their investments. For existing owners, the ability to trade shares in the market provides a significant advantage over other business structures. However, these features aren’t the only advantages that share ownership provide. Owners also have the option to choose between one of the many different types of ownership.

What are the different types of ownership in companies?

For most of the different types of ownership structures in companies, the base is the same. An owner acquires a company’s shares and becomes part-owner of the company. They also receive any benefits offered by the underlying company for their share of the company’s shares. On top of that, they also assume liability for their ownership.

Some owners may hold shares temporarily, while some will have them for the long term. Similarly, some will acquire more shares, while others may prefer to keep it low. Based on these distinctions, it is possible to differentiate between different types of ownership in companies. Some of the most prevalent classifications include the following.

Shareholder

A shareholder is the most basic classification of ownership in companies and holds a company’s shares. They may acquire these shares directly from the company through share issuance or from the share market. Some shareholders may also inherit shares or get them by default. Regardless of how they acquire these shares, anyone who owns a company’s shares will constitute a shareholder.

Shareholders usually have voting rights that come with their shares. However, these rights may differ based on the shares they own. Most ordinary shares hold similar voting rights. However, some other shares may provide additional or no voting rights at all. Shareholders also own the right to receive dividends or any other benefits distributed by the company.

A shareholder only gets the percentage of ownership that relates to the number of shares they own. Most shareholders hold a minimal number of shares. Therefore, they may not control a company’s operations or have a say in its strategies. However, they can still vote on them. Similarly, shareholders are also liable for any obligations that pertain to their percentage of holding.

Minority Shareholder

As mentioned above, most shareholders do not hold significant shares that allow them to control a company. These shareholders are known as minority shareholders. A minority shareholder is a company’s shareholder that owns less than 50% of its shares. Since these entities do not own more than half of a company’s shares, they cannot directly control it.

The primary definition of minority shareholders consists of holding less than 50% of shares. As stated above, however, some shares may come with higher voting rights. In those cases, shareholders who own less than 50% shares may still control a company. Therefore, a minority shareholder is an entity that holds a company’s shares but cannot control it.

Majority Shareholder

The opposite of a minority shareholder is a majority shareholder. A majority shareholder is a company’s shareholder who owns more than 50% of its shares. In some cases, it may also refer to shareholders who hold enough shares to control its operations. The majority shareholders have power over a company’s operations, decisions and strategies.

Usually, majority shareholders are other companies, known as parent companies. The company in which these companies own shares is known as a subsidiary. Since majority shareholders own controlling power over the company, they have the final say in any decisions. Therefore, they are more crucial for companies compared to minority shareholders.

Beneficial Owner

A beneficial owner is an individual or entity who reaps the benefits of ownership. However, they do not hold the title to the underlying asset that generates those benefits. For companies, a beneficial owner is someone who does not own a company’s shares. Nonetheless, they can obtain rewards from the company. For example, a broker may technically own a company’s shares. However, the beneficiary for those shares will be different.

A beneficial owner does not hold the legal rights to a company’s shares. In most cases, the beneficial owner and shareholders will be the same. In others, however, they may differ. Although these entities may not own the shares legally, they may still be liable to some obligations. These obligations may come from the country’s companies act where these individuals are beneficial owners.

Ultimate Beneficial Owner

In some cases, a complex chain may exist for a share’s ownership. There may be several parties involved in it where they may all benefit from a company’s shares. In these cases, naming a single beneficial owner may be necessary. For that reason, it is crucial to determine the entity that is the ultimate beneficial owner. This process may also be mandatory under the law under anti-money laundering and counter-terrorism acts.

An ultimate beneficial owner (UBO) is an entity that receives the overall benefit from a company’s shares. The definition for UBOs may differ from one jurisdiction to another. In most cases, UBOs will include entities that hold a minimum of 10-25% of capital or voting rights in the underlying company.

Registrable Controller

In some jurisdictions, registrable controllers are also a type of ownership structure in companies. In Singapore, it is mandatory for companies to maintain a register of registrable controllers. These registrable controllers constitute the beneficial owners of the company. The Accounting and Corporate Regulatory Authority (ACRA) defines several criteria to determine which entities may be registrable controllers.

According to ACRA, a registrable controller is an entity that holds greater than 25% of shares in a company. Similarly, it may include entities that own more than 25% of members’ voting rights in the company. Lastly, anyone who can exercise significant influence or control over a company is also its registrable controller.

Conclusion

Companies are a complex structure that provides owners with many benefits. Among other advantages, companies also offer different types of ownership. These may include shareholders, minority and majority shareholders, beneficial owners, ultimate beneficial owners and registrable controllers.

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