What Are the Differences Between a Single Owner Business & a Stockholder's Equity?

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A single owner business is unincorporated and commonly referred to as a sole proprietorship. Stockholders’ equity refers to the ownership claim of individuals or firms in a corporation, which they acquire by purchasing shares of stock. The share stock represents a proportionate share of ownership in the corporation. These two types of businesses are run in varied ways given the fundamental difference in ownership.

Management

In a corporation, stockholders delegate the authority to manage their business to a board of directors, who further delegate to the corporation’s officers. The board sets corporate policies in the management of the business. The management has the duty of reporting the annual financial results to the stockholders. In a single owner business, the owner is the sole manager and only relatives or friends may assist in the day-to-day running of the business.

Legal Personality

Businesses with stockholder’s equity are usually large corporations that are separate legal entities from their owners. As such, a corporation can buy and sell property, sue other parties, enter into contracts, hire and fire employees, and pay taxes. A corporation also has perpetual existence, as it is law that gives it life separate from the proprietors. On the contrary, a single owner business dies with its owner who also prepares personal income tax returns from the business.

Capital

Stockholder’s equity is the main source of capital for a corporation, especially common stock through issue of shares. The shares of ownership are available to a large number of potential investors for a small amount of money. A single owner business requires little or no investment in capital, which the owner can easily raise from personal savings, friends' contributions or a personal loan. The owner’s capital account in the balance sheet represents total owners equity.

Regulation

Corporations must meet the requirements of state law. They are subject to greater state control and regulations than single owner businesses. Corporations must file many reports with the state, mainly to protect the several stockholders who stand to lose in case of corporate failure. Corporations also file reports with capital market authorities and exchanges in which they are listed. Single owner businesses face no regulations from government and have few reporting obligations.

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References

  • “Principles of Accounting”;Needles Belverd E. et al; 2008
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