Equitable ownership is a form of ownership in which the legal title or document of ownership is held by one party, but the real benefits and rights associated with owning the asset or property are shared between two or more parties. For example, in a marriage, one party may be listed on the title to a home, but the benefits and equity associated with the home are shared between both parties.
Understanding Equitable Ownership in Practice
The concept of equitable ownership is also found in business and commercial transactions. For example, a venture capital fund may invest in a startup under a Structure Agreement where they have the legal title to the shares of the startup, yet two or more parties have the right to direct the company’s affairs under the Structure Agreement. In addition, two or more entrepreneurs may form a joint business venture where each of them contribute money, labor, and assets, yet have the legal title of the company held in the name of one of them.
What Does Equitable Ownership Mean for Rights and Obligations?
It is important to note that the legal ownership rights of the asset or property are only held by one party, not all parties involved. This means that the party with legal title will still have legal rights to the asset or property as the owner such as the right to sell, manage, or transfer it. When discussing the assets and liabilities of a business, the holder of the legal title of the business may be the sole responsible party. However, the parties that share the equitable ownership may still have rights, obligations, and liabilities as associated with their stake in the business.
Benefits of Equitable Ownership
There are several benefits of equitable ownership, depending on the situation and context. Generally speaking, the primary benefit of equitable ownership is that it enables multiple parties to share in the risk and reward of an asset or venture. For example, tax advantages associated with joint ownership can be beneficial for married couples and entrepreneurs. Additionally, having more people owning and investing in a venture or asset can help spread the risk, share the burden of management, and contribute to the overall success of the venture.