Who does own a corporate? They say it becomes an entity of its own, can own assets, can incur liabilities, can attract investments and is a being of its own, shielding its board and management from most liabilities. Who owns it then?
Once in a blue moon, this situation repeats itself.
The board of a company along with the stakeholders and investors are pushing the entrepreneur towards a direction which he/she is really not liking the latter and tries playing the ownership card. "This is my company and I do have the best in mind for it." Nobody usually reacts to those words, but technically one could throw you out for making statements like that. I’ll start with who doesn’t own a company—it’s the entrepreneur.|
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| Vijay Anand |
Whoever sold you the romanticism that being an entrepreneur meant being your own boss was clearly lying. You really never escape the chain of command and reporting structure so easily not in a civilized society. So It’s no wonder that things don’t span out as they say. As an employee you might be accountable to your boss, but as an entrepreneur you are accountable to all of your clients, stakeholders and employees. And every one of them holds you responsible to have the answers and do your best—that’s no different from being an employee. Think about it.
So here are two things you must know. It is crucial to understand this because this sets the context to understand a whole lot of things that happen through the course of the company:
- The day you incorporate your company you no longer own it. If you want to own something, keep it a proprietary firm or under a partnership (wouldn’t recommend it, as the statistics as high as 99 percent of the partnerships ending in breakups). It might not be a bad idea to keep it as a family business, but there as well its joint ownership
- The day you agreed on a term sheet and took money from your investors, you made up your mind that you were going to sell your company for a good price someday. Investors invest looking for returns and those returns are never going to happen without an exit; and an exit means a sale. Read that line a few times, it helps to get it into your head. You have by all means sold your company when you took investment. Period.
So the obvious question arises. Why on earth would anyone want to be an entrepreneur despite all these gory truths? Well, a couple of reasons. a) You still do have the capacity and capability to build something from scratch, scale it and make money in the process—you are still one of the major stakeholders in the firm and b) What you want to do to create this value (be it money or impact or fame) is all left to you,– at least in the beginning.
The intent for writing this article is for one thing. I see and come across enough entrepreneurs who want to own more than 50 percent of the company. That’s almost the sure way to kill the company and strangle some relationships, because it shows that you haven’t gotten the first thing about a corporation right—you can’t own it. And the only way to scale it is to give up control, bring in the right people, and yet have enough of a leeway to make a decent exit. Note how the stake you hold is towards a better return, rather than control.
And in all this, the obvious question remains. Who does own a corporate? They say it becomes an entity of its own, can own assets, can incur liabilities, can attract investments and is a being of its own, shielding its board and management from most liabilities. Who then owns it? The answer to that is probably the most shocking. The government. The government is who owns a corporate—infact every corporate. The rules of the land enable and provide the space for passionate, enthusiastic and enterprising individuals to spot an opportunity, exploit it, create jobs, add value, attract investments, grow the company, expand, create a board to make their own decisions and directions for the entity, make an exit, or even take it public. But at the end of the day, when and if it does shut down and incurs a loss, the losses go away with the fading memory of the company. And that’s the shield that a government provides to the entrepreneur—probably the best of freedom for an individual to create wealth and value the fast track way.
As far as the government is concerned, creating jobs is one of its prime mandates. And corporations are instruments towards that cause.
In the light of that, look at the bailouts. You might see a slightly different picture.
Vijay Anand is an entrepreneur who has experience starting and building various technology startups, starting at the young age of 16. He is currently the Incubation Manager at RTBI, an incubator in IIT Madras that focuses on building rural-focused businesses. He is also the founder of Proto.in, India’s premier technology showcase event and is involved in various initiatives that are shaping up the emerging entrepreneurial scene in India. He blogs as The Startup Guy at www.vijayanand.name and tweets regularly at www.twitter.com/vijayanands.
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written by Fashion Mantra, October 21, 2010
written by SAREES, August 21, 2010
written by Vijay Anand, April 07, 2010
You have to understand that an incorporation is not in anyone's control. Board of directors can be replaced and so can the executive management team. If you still want to preserve "control" it might be better off working with other structure either a Sole Proprietorship, or as an LLP - and obviously you wont get invested in, into such structures.
Typically, the first investor who comes onboard will carry veto rights. How do you fight that? You cant!
The Promoter is no more than a super employee. They are the management and also a stakeholder. And they cant wear both hats at the sametime. Its complex, but one at somepoint needs to understand that.
Ofcourse there are at times when radical cases as when certain board members are given multiple voting rights (the case of Google for example), but you have to be an extraordinary genius and have a brand bigger than the company to command such things.
written by Sanjay Dwivedi, April 07, 2010
However, where the promoter is also in the execution team, then dilution till he/she owns between 26% till 33% is a sweetspot..there's enough listed company data available.
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