Definition of Ownership Right

Ownership right is the legal right to control a business entity, make strategic and operational decisions, and obtain financial benefits from its performance. It includes authority over company assets, responsibility for debts and obligations, and the right to profits and distributions according to ownership percentage.

Components of Ownership Right

Ownership right in business includes a diverse set of rights and privileges that collectively define the owner's relationship with the institution. These components determine the scope of authority, financial benefits, and responsibilities that come with owning a stake in the business:

• Financial Stake - The financial share that represents the owner's proportional claim to the company's net worth, calculated as a percentage of total ownership. This stake determines the owner's share of company value and forms the basis for all other ownership rights, fluctuating with the company's financial performance and market valuation.

• Control Rights - Comprehensive decision-making authority and voting power that allows owners to influence key business matters including strategic direction, mergers and acquisitions, board member elections, and fundamental organizational changes. The extent of control usually corresponds to the size of the financial stake, although certain ownership structures may grant disproportionate control rights.

• Profit Rights - Legal entitlement to receive profits, dividends, and other financial distributions based on the owner's ownership percentage. These rights include regular dividend distributions during operations and special profits, with priority and timing often determined by the type of ownership interest held.

• Transfer Rights - The fundamental ability to sell, assign, transfer, or dispose of ownership shares to third parties, subject to any contractual restrictions or regulatory requirements. This component provides liquidity to owners, exit strategies, and the possibility of realizing investment when desired.

• Residual Claims - The priority right to claim remaining company assets after settling all debts, obligations, and liabilities, particularly relevant during liquidation or dissolution. This represents the ultimate financial benefit of ownership, where residual claimants receive any value remaining after paying creditors.

• Management Rights - Authority to actively participate in daily business operations, strategic planning, and operational decision-making. These rights may include appointing management, setting policies, approving budgets, and overseeing business activities, although the extent varies significantly based on ownership structure and individual agreements.

Types of Ownership

Ownership forms in business vary according to the chosen legal and organizational structure, with each type having distinctive characteristics in terms of liability, management, and taxation:

• Sole Proprietorship - One person owns the entire company and bears unlimited liability for all debts and obligations, with complete freedom in decision-making and receiving all profits

• General Partnership - Partnership between two or more people who share in managing the company, profits, and losses, with each partner bearing unlimited liability for partnership obligations

• Limited Partnership - Includes general partners who manage the company and bear unlimited liability, and limited partners who only invest money and their liability is limited to their investment amount

• Corporation - A legal entity separate from its owners, where shareholders' liability is limited to the value of their shares, with the possibility of offering shares for public subscription

• Limited Liability Company - Combines partnership flexibility with corporate limited liability advantages, with flexibility in management structure and tax treatment

• Cooperative - Owned and managed by its members who use the services, where members participate in decision-making and profits based on their participation rather than their investment

Advantages of Ownership Rights

Ownership rights holders enjoy a set of advantages and benefits that make ownership investment attractive, including:

• Diverse Financial Returns - The right to receive distributed profits and cash distributions based on ownership percentage, in addition to the possibility of obtaining capital gains when selling the stake

• Long-term Capital Appreciation - Increase in investment value as the company grows and its financial performance improves, achieving returns that exceed inflation and traditional investments

• Control and Influence Rights - Authority to participate in strategic decision-making, vote on important matters, and influence the company's direction and future

• Flexibility in Disposal - Ability to sell, transfer, or mortgage the stake at any time according to market conditions and personal needs, providing relative liquidity

• Comprehensive Legal Protection - Rights preserved and protected under commercial and civil laws, with the possibility of resorting to courts when these rights are violated

• Priority in Asset Claims - Right to receive a share of company assets upon liquidation or sale after paying debts and obligations to creditors

Proving Ownership Rights

There are multiple means and tools used to prove ownership rights in companies, which ensure protection and documentation of shareholders' and owners' rights:

• Share Certificates - Official printed or electronic documents bearing ownership details including owner's name, number of shares, type, and issue date, considered the primary and conclusive evidence of ownership

• Shareholder Records - Official lists maintained by the company or licensed custodian containing names of all shareholders, their stakes, and acquisition dates, subject to continuous review and updating

• Contracts and Agreements - Documented legal documents for purchase, sale, transfer, and assignment transactions, including terms and conditions and signatures of certified parties and witnesses

• Accounting Records - Systematic registrations in company books and accounting systems that document share movements and changes in ownership structure according to adopted accounting standards

• Financial Receipts - Documented and certified payment evidence from banks or licensed financial institutions proving money transfer in exchange for investment or share purchase

• Legal Documents - Final court judgments, arbitration decisions, and administrative decisions issued by competent authorities that confirm or transfer ownership rights in cases of disputes

Return on Equity

Return on equity is an important financial ratio that measures the company's efficiency in using shareholders' money to generate profits. This indicator is considered one of the most important financial ratios used by investors and analysts to evaluate company performance and profitability, where a higher ratio indicates better ability to generate profits from shareholder investments. Return on equity is used to compare company performance within the same sector and evaluate investment attractiveness, helping make informed investment decisions.

Formula: Return on Equity = Net Income ÷ Average Shareholders' Equity × 100