How Business Owners Get Their Companies: A Look at Founders, Purchasers, and Heirs

Previous Growthology posts have examined the racial and gender differences in entrepreneurship, with women and people of color having lower rates of entrepreneurship. In addition, a previous blog post examined the role of the racial wealth gap in these lower rates of entrepreneurship, as people of color have less assets to use when starting a business. But new data shows another dimension to the gender and racial gap when it comes to how business owners come to own their business. 

When looking at how entrepreneurs obtained their business, the Annual Survey of Entrepreneurs shows the differences between entrepreneurs of different genders and races in how they came to own their companies. This sheds additional light on how family inheritance, assets, and immigration interact with race and entrepreneurship.

Method of Obtaining a Business

By race and gender

Founded or started

Purchased

Inherited

Transfer of ownership or gift

Total

70.45%

21.01%

3.94%

7.03%

Asian

68.42%

27.24%

1.53%

5.08%

Black

81.02%

13.31%

2.63%

5.08%

Hispanic

78.86%

14.82%

1.96%

6.22%

White

70.36%

20.56%

4.25%

7.30%

Male

71.25%

21.73%

3.51%

6.01%

Female

68.56%

19.31%

4.97%

9.44%

Annual Survey of Entrepreneurs 2016

Founders or Starters

An overwhelming majority of entrepreneurs (70 percent) start or found their company. However, Hispanic and black entrepreneurs are nearly ten points more likely than the average entrepreneur to start or found their company (79 and 81 percent, respectively).

Purchasers

There are large racial differences among those who purchase a company. Among all Americans, 21 percent obtain a company through purchase. Asian Americans are the most likely to obtain a company through this method (27.2 percent), followed by white Americans (21 percent). Hispanic and black Americans are much less likely to obtain a company through a purchase (14.8 and 13.3 percent, respectively). As those with more wealth have the ability to purchase a company, it makes sense that white and Asian-Americans are more likely to purchase a company as they hold significant more wealth than other racial and ethnic groups. As the chart below shows, the median white household holds nearly 10 times more wealth than the median Hispanic and black households, while Asian-American households hold about seven times more wealth than Hispanic and black households. 

Household Median Wealth

By race

White

Asian

Hispanic

Black

$134,008

$91,440

$13,900

$11,184

Federal Reserve Bank of St. Louis. “The Demographics of Wealth: How Age, Education and Race Separate Thrivers from Strugglers in Today’s Economy.” February 2015.


Inheritors

White Americans are more than twice as likely (4.3 percent) to inherit a company as Hispanic (2 percent) and Asian Americans (1.5 percent). This could be related to generational immigration patterns, with Hispanic and Asian Americans more likely to be first generation Americans than their white counterparts.

Interestingly, women are the demographic group most likely to obtain a company through either inheritance or transfer of ownership or as a gift. For women, 14.4 percent obtain their companies through these methods, compared to 9.5 percent of men.

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