What Does It Mean to Be a Principal in a Firm?

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Principals in firms may be individuals or entities that meet certain qualifications, such as being the sole proprietor of a sole proprietorship, a director, chief executive officer or chief financial officer, or someone who owns a certain percentage of shares and stocks within the company. Principals in firms may hold their position individually, or share the responsibilities of serving as principals with other employees. The qualifications to become a principal are fairly broad, but involve some degree of financial commitment in the organization.

Individual employees and entities may serve as principals, although individuals are more commonly appointed as principals of firms. These employees may also hold executive-level positions within their companies, and serve as chief compliance officers, chief financial officers, directors, or be put in charge of units, sub-groups and divisions within the company. Principals may be in charge of financial decisions within companies, and may be involved in various other parts of the business, such as management. Some principals serve as committee members in organizations, and can also be nominees and trustees. Principals of firms may partially hold companies, trusts and nominees, and are generally required to hold 10 percent of shares in those categories to be considered principals. Entities may qualify as principals if they are general partners or hold 10 percent shares.