Principal Owner

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 29, 2023

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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:

Leadership Roles

They are usually in charge of overseeing all managerial functions, including staffing.

Investor Relations

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

Formulating business strategies based on past performance, future potential and economic factors. This includes forecasting expenses, generating capital forecasts and managing cash flow.

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.

Final Thoughts

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.

Principal Owner FAQs

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®), author of The Handy Financial Ratios Guide, 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.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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