Sometimes no ownership at all may be required to justify the title of principal. In this case, the majority owner may choose to have a title such as managing principal. So more than one person may be considered a principal. Even more loosely, anyone with any share of ownership may be called a principal. Principals are also often defined as persons who own 10 percent or more of the equity in a business. While principals usually are sole owners, that’s not always the case. In these cases, the partnership’s general or managing partners may be referred to as principals to distinguish them from regular partners. Partnerships are another kind of business where principals are more often found. Or it may be an informal title that the owner and other members of the LLC, if there are any, agree can be used. Principal may be an official title outlined by the LLCs operating agreement.
To distinguish themselves as more than members of the LLC, sole owners of LLCs may call themselves principals. Anyone who owns shares in an LLC is officially known as a member. The structure of an LLC doesn’t require someone with the title of president, CEO or chairman of the board. Corporations have boards that are responsible for appointing officers such as the president or CEO. That’s because LLCs have a more relaxed business structure than corporations. Principals in LLCsĪmong the leadership of limited liability companies or LLCs is the place where principals are most often found. They’re more likely to use another title, such as CEO, president, founder or just plain owner.
However, sole proprietors don’t typically refer to themselves as principals. In this case, the principal is also often the president and CEO as well as being sole owner.
That’s because sole proprietorships are by far the most common form of business organizations. Most of the time, the principal of a company is also the sole owner.
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