What Is an Ownership Contract?

One of the most expensive properties a person can own is either a home or a business. In real estate, an ownership contract is a document that sets the conditions and terms of a property ownership agreement. For example, an unmarried couple may decide to purchase a house. Since it requires a large sum of money, the conditions written in the agreement will protect the ownership rights of both parties if they separate. A contract will make the dissolution easier for both parties, and some couples may consider sharing the property equally. In business, written contracts of ownership cover essential details concerning the relationship of entrepreneurs as co-owners of a company. A business contract will give the parties involved an opportunity to limit liabilities, define responsibilities and expectations, divide risks, and specify monetary obligations.

According to the U.S. Census Bureau, the rate of homeownership in the U.S. is 65.3%.

Different regions take a slice of the pie, specifically, the Northeast 62.4%, the Midwest 69.2%, the South 67.6%, and the West 60.1%.

When we talk about business ownership, there were about 30.7 million small businesses in the United States in the year 2019. That accounts for 99.9% of the businesses in the country.

The Different Classifications of Ownership in Businesses

There are several classifications of business ownership, and each type may require a specific contract that fits its organization. A particular business type may need a basic business agreement, a co-ownership agreement, a partnership agreement, or an LLC ownership agreement. With that said, here are the different forms of ownership in businesses.

Sole Proprietorship. The simplest form of business ownership is a sole proprietorship because there is only one person who is accountable for the whole business. An example is a small retail shop that is usually run by the owner himself. The owner and the business are one, which means the owner is answerable for all the debts of his business. In return for that accountability, he gets to keep the entire profit he gains from his trade. Moreover, a sole proprietorship only has few regulations from the government, which gives the owner more control over the business. Also, an owner only pays for his taxes once, and he may qualify for a tax break if his business is at the edge. Note that in this type of business, a sole proprietor might need a proof of ownership form.Partnership. This is common with friends or families who set up a business together. A partnership is a company that is run by two or more individuals who operate as co-owners. Partnerships can be general or limited. When you are part of a general partnership, you and your partners will have equal liability in your business. In a limited partnership, one or two of your partners has limited accountability for the debts of your business. Also, it is somewhat similar to a sole proprietorship because you only pay for taxes once and only have a few regulations from the government. The advantage of being in a partnership is that you get to share your resources and expertise with your fellow partners. Thus, you expect it to have a higher rate of growth compared to a sole proprietorship. However, you have to share your profits with your business co-ownersCorporation. A corporation is a business that is not directly in connection with its company holders. Therefore, it only presents a limited liability for all its owners, yet it demands double taxation when it comes to their profits. All holders must pay a personal and corporate income tax from their gains. Compared to other examples of ownership, a corporation gets more funding because of its size. Nevertheless, it has more government regulations, and it must keep its records extensively. Additionally, establishing a corporation is difficult because it requires more capital to pay for the necessary expenses and legal documentation. This type of ownership only suits organizations that are already mature enough.Limited liability company. An LLC enjoys the advantages of a partnership and a corporation. It pays taxes like a partnership but only has limited liability similar to a corporation. It is easier to organize, and it doesn’t have to pay for double taxation. However, this type of business may only apply to lawyers, doctors, and accountants.S Corporation. A less familiar type of ownership is an S corporation, where owners are not under obligation for double taxation. Instead of paying for corporate taxes, the company holders only pay for their personal income taxes. Unfortunately, this type of organization has more restrictions and government regulations. It can only have a specific and limited number of shareholders.Franchise. If you know the fast-food chain McDonald’s, then you have an idea of what a franchise is. A franchise is a type of business ownership that authorizes a franchisee to use the business model of the franchisor. The franchisor will be responsible for training the franchisee on operations, advertising, marketing, and more. To keep ownership, a franchisee must pay royalties on every profit and follow guidelines strictly. Also, owners have no full control over the number of supplies they can purchase. Additionally, if the owner wants to sell the franchise, he must first request the approval of the franchisor.Cooperative. A cooperative is an institution that is under the supervision of its association members. It only poses a limited liability to its members. Also, it distributes profits equally depending on the percentage of ownership of every member. However, because of its democratic system, every big decision the whole organization has to make depends on the association members. People or businesses decide to establish cooperatives so they can pool their resources to meet a general need.

How To Write a Formal Ownership Contract

Every contract a business involves itself in can significantly impact its future. So, here are the steps in creating a valid ownership contract template:

Step 1: Have the Same Goal in Mind

All the parties involved in a contract must agree to the same goal before they sign the agreement. This is a very crucial step that significantly affects the relationship of co-owners if they neglect it. Communicate with your partners and assess if they have a similar goal in mind.

Step 2: Write the Conditions of the Deal

Now that all parties have settled on one goal, each should contribute an asset before entering the business deal. For example, one party may provide its services or goods in return for money from the other partner or co-owner. Write all assumptions you can think about for your contract, especially when it comes to payment. The contract must detail when and how all the parties involved will receive compensation for their business contributions. Write the term, method, schedule, and formula for payment.

Step 3: Create the Contract

After all the parties involved understand what the deal is all about, they should start creating the contract. Remember that all partners or co-owners must reach an agreement before even signing the contract. Note that it is okay to make some changes of the ownership agreement as long as you do it before you or your partners sign it.

If a partner or co-owner who signs the agreement is legally incompetent, the contract may become unenforceable. A minor who is 18 years old below cannot enter into a contract without the approval of his guardians or parents. An individual who is lacking in sound mind or has mental impairments due to alcohol or drug addiction should not be permitted to enter the agreement. That person will only stir up confusion within the business organization. Additionally, a person who doesn’t have enough authority but signs on behalf of someone in authority cannot attain his purpose unless he has legal authority.

FAQs

Does ownership also apply to other types of properties?

Though the term ownership applies commonly to real estate, it also applies to intellectual property, stocks, artworks, vehicles, boats, and more. Bear in mind that ownership grants an individual the right over a valuable asset under the law’s protection.

What is intellectual property?

Intellectual property can come in the form of copyrights, franchises, patents, trade secrets, trademarks, or even ideas. It is a broad term that describes the intangible things a company owns and protects from third party use without consent. The idea is that intellectual property, which is the product of the human mind, must share the same rights that tangible properties have. Why? One reason is that intellectual property can give a business an advantage over its competitors. Companies do their best to protect intellectual property because of it’s high value in the economy today. The company must have the only right to benefit from its idea and take its stand above the rest.

Copyright co-ownership can happen in different ways. Examples include two individuals who create the same work, an author who transfers some of his rights to his family member, an author who trades a part of his work to others while keeping a remainder. Copyright co-owners are also legally known as tenants in common. So, when one party dies, his share directly goes to his surviving co-owners. Moreover, each co-owner has a right to independently use the copyrighted work as long as he accounts for it with his co-owners. Therefore, co-owners must coordinate with one another, especially when it comes to the profits they each gain from the copyrighted work.

There are cases where a copyright notice is missing from c work. One reason may be because a copyright notice is no longer a requirement with works published after March 1, 1989. For works that were published before the said date, notices were only required for “visually perceptible” copies such as books, drawings, paintings, architecture, computer programs, and films. One example of a work that is not visually perceptible is a compact disc with a song. A copyright notice will only be a requirement if the author prints the lyrics of the song on an album cover. Moreover, one more reason may be because the owner didn’t work on it, which gives him no right over the copyright.

What is a trade secret?

Trade secrets can come in different forms depending on what type of business a person owns. It can be a system, a design, a method, a recipe, or a formula that outside parties do not know about. It is a means that entrepreneurs use to gain an advantage over their competitors and provide quality service to their customers. All trade secrets are not information open to the public. They are secrets that their holders protect and take benefit from. Note that companies protect their trade secrets by letting their employees sign a non-disclosure or a non-compete agreement upon hiring.

As we have seen, an ownership contract applies to both tangible and intangible properties. Its main purpose is to protect the ownership rights of every party involved in an agreement. It controls and regulates the relationship between partners and co-owners to avoid unnecessary conflicts. Neglecting the use of this vital document may lead to the loss of one’s hard-earned wealth.