A principal owner is one of several owners—shareholders or partners—in a privately owned business.
They are responsible for the overall management of an organization, reporting directly to their shareholders or partners.
The position does not come without risk; it’s important that potential candidates understand the responsibilities involved before making the decision to become a principal owner.
Most of the time, the principal is also the owner who receives the most money from their shares or partners. This is because the principal owner is the one who bears most of the responsibility for leading and managing the business.
What Are Principal Owner Responsibilities?
Principal owners have many responsibilities, some of which can be onerous.
Here are just some of the many tasks that come with being a principal owner:
They are usually in charge of overseeing all managerial functions, including staffing.
Representing the company in front of investors who may provide capital.
Reporting to Board of Directors or Advisory Committee
This usually includes giving a bi-weekly business update, monthly financial statements and quarterly reports.
Raising Capital / Closed Periods
Setting fundraising goals and determining how to reach them, as well as advising the board on the best way to close a funding round.
Financial Planning & Forecasting
Accounting & Legal Roles
Attending board meetings, reporting to the board on a regular basis and making sure to follow all internal procedures.
Liaising with Tax Advisors
They are responsible for keeping track of financial transactions and filing tax returns.
Human Resources Tasks
Additionally, principal owners may be tasked with overseeing human resources tasks.
This means that they have to hire or fire employees, consult with HR managers regarding workplace issues and make changes that affect employee benefits.
How To Become a Principal Owner?
There are a few ways you can become a principal owner, but most common way is to:
- Start your own company
This may seem like the easiest and fastest way to be a principal owner, but it’s not as easy as it seems, especially when there are other things on your plate.
It takes time and energy to build an organization, so only do this if you’re prepared to work hard.
- Buy in when someone else starts a company
This is also another way to be a principal owner; all you have to do is invest in the business and become an owner.
You could provide the capital needed for the business to begin running, or cash in if the business is already making profits.
- Work at a company with advantages to being a principal owner
The last way to become a principal owner is to work for an existing company that has all or some of the following things:
– The potential for future growth and success
– A strong leadership team
– Investors willing to provide capital when needed
– An established business structure
Benefits of Being a Principal Owner
First of all, your hard work will be rewarded.
Beyond that, there are other advantages to being a principal owner that you should note:
– You’ll have complete control over how your business is run.
This means you’re allowed to make important decisions without having to ask permission.
– Being a principal owner also gives you the chance to grow with your business.
You’ll have the power to make important decisions, including managing people and resources.
– Finally, if things go well, you can get an immense amount of wealth.
Being a principal owner means that you are entitled to receive more shares or profits than other owners.
Drawbacks of Being a Principal Owner
There are disadvantages, too. Here are just some of them:
– Personal liability comes with being a principal owner so if your business fails, you’ll lose everything and owe money to your creditors.
– Being a principal owner requires a lot of time and energy, so you’ll have to give up other things in your life if you want to succeed.
– There are always risks involved, even if you think the business is completely safe.
– You may find yourself in an uncomfortable position where you have to fire or lay off workers.
There’s no benefit in firing employees because it only adds to the tension and stress level of other employees who want to keep their jobs.
There are benefits and drawbacks to being a principal owner, but those who’ve done it say the advantages far outweigh its disadvantages.
If you’re prepared to take on some risk and work hard, then becoming a principal owner is one option that may prove effective for you as well as your business.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.