Business Ownership: Definition, Features & Ways to Transfer

Owning a business can take different forms, including partnerships, sole proprietorships, cooperatives, or corporations. Business ownership is crucial in entrepreneurship as it determines your control level or liability over an endeavor. Whether it is a limited liability or a sole proprietorship company, knowing how to transfer ownership is helpful, especially if there is a need for the holders to remove themselves without closing the business. One consideration when considering how to transfer ownership is the legal and financial implications, which vary per the transactions or business structure type. 

How Does Business Ownership Work?

Due to the changing economic and social landscape, business ownership has developed over time. Centuries ago, businesses were controlled by families or individuals, but the legal framework detailing the owner's rights was rudimentary. In the 18th century, though, industrialization brought the limited liability entities that became the new form of ownership. It became popular among corporations, though other alternative forms of ownership have become acceptable and mainstream. Currently, business ownership is the legal and financial control over a for-profit entity. Business owners have the authority to make operational decisions and assume liabilities in exchange for enjoying profits. However, they also bear the responsibility of getting the right business licenses and potentially bear any losses made. Depending on the structure, the business owner also has the right to manage resources by hiring and dismissing their workforce. 

How to Transfer Business Ownership?

Transferring business ownership will depend on the structure in place. The most common way to transfer business ownership is by selling it to another individual or a company. If several partners own the business, it may be reapportioned. The other approach is to lease the business. There may be complex financial, taxation, and legal obligations if one transfers business ownership from one LLC to another or from a sole owner. It would mean consulting a lawyer to ensure you comply with all legal requirements. That also ensures appropriate transfer of business ownership agreements have been filled.

Selling a Business

Valuation is necessary if a sole owner owns the business so both parties can agree on the price. A business may be sold by cash or via lending financing. For these cases, the purchaser pays the company either from their account reserves or through a loan. Business may also be sold by owner financing. In this case, the owner finances a sale rather than a lender. The buyer pays for the ownership over time per the terms the seller sets. Selling part or all of the businesses’ attributes like contractual obligations, property, client lists, or the business name is possible.

Business Leasing

The other alternative one may consider is to lease their business to buyers. Some buyers prefer this option to determine if the business is a good fit for them. The seller would create a lease-to-purchase agreement initially and offer it to buyers. They could also wait until the end of the lease period before moving ahead with a traditional sale. Once the lease has expired, the buyer is forced to decide whether they would like to renew it or terminate the endeavor. However, This approach provides freedom to explore career and entrepreneurial approaches without committing to giving up the business. It also provides the seller time to find the perfect owner for their business. 

Gifting Business

Though rare, ownership may also transfer to another party by gifting. If the buyer wants to hand the business over to family members or close friends, they can do so without requiring money in exchange. There are two ways to do this, though: gifting the business in small increments or including it in the will. The former approach is optimal if the goal is to pass it on to the target party while the buyer is still alive. It is also possible to avoid taxes by transferring a value under $16,000 per individual per year. The lifetime ceiling for the gift, though, is $12.06 million without being taxed. Alternatively, you may transfer a part or all of the business to beneficiaries in a will. The will is executed on the death of the giftor. Similarly, beneficiaries who receive amounts below $12.06 million will be exempt from taxation. 

Merge with another Business

It is also possible to transfer the business by merging with another or facilitating an acquisition by another. This approach may be of benefit if there are clients that require ongoing attention. The new company then continues to offer the same products or services desired by the customer base. This approach is sometimes sensitive as it may involve a hostile takeover of one business by another. However, the larger or acquiring corporation typically wins most of the decision-making ability. 

Reapportion Ownership among Partners 

If you have a partnership or a limited liability company, it is possible to transfer the ownership of the business by adding partners that will pay for their interests. Partnership structures are usually guided by an agreement allowing or restricting the transfer of shares. The members of the partnership are required to follow the terms of the agreement. If it is in the agreement, one of the partners may be able to transfer ownership via profits, voting rights, and other responsibilities. 

After purchasing most of the share capital, the partners will become the new owners. For limited liability companies, the owners are considered members and pay for a percentage of ownership rights. Most are administered via an operating agreement and the articles of the company. Individuals can get ownership by buying into the company. They should check asset records and consider the regulations set in the company constitution. Similarly, the other members also must agree to the transfer, and the process must follow state laws. 

Business ownership entails the rights and responsibilities a person has over their venture. It depends on the structure of the business, as there are sole proprietorships, partnerships, joint ventures, and limited liability corporations. There are five common ways of transferring ownership, including sale, leasing, reapportion among partners, merging, and gifting the ownership. The transfer of business ownership should adhere to the business type’s regulations. If you need more information on the transfer of ownership, please check our landing pages and guides.