2.Corporate Governance

Question 1

What is Corpotare Governance?

Answer 1

describes a system by which a company is directed and controlled.

Question 2

Three major forms of business organization

Answer 2

Sole Proprietorship,PARTNERSHIP,Corporation

Question 3

Sole Proprietoship Adavntages and Disadvantages

Answer 3

Advantages: Easy to start, Least regulated , Single Owner keeps all the profit, taxes once as personal income

Disadvantages: Limited to life owner, Equity capital limited to owners personal wealth ,unlimited liability, difficult to sell ownership interest

Question 4

Advantages and Disadvantages Partnership

Answer 4

Advantages: 2 or more owners, more capital available , relatively easy to start , income taxed once as personal income , At least one partner has limited liability

Disadvantages: Liability for debts ( general partnership- unlimited, limited partnership- limited), Partnership dissolves when one general partner dies or wishes to sell, difficult to transfer ownership

Question 5

Advantages and Disadvantages Corporation

Answer 5

Advantages: A ,,legal,, person,, limited liability , separation of ownership and management , unlimited life, number of owners can be huge, easier to raise capital,transfer of ownership is easy

Disadvantages: Difficult to start, highly regulated, ownership does not lead to management control, Double taxation

Question 6

Types of boards and board structures

Answer 6

Two tier board
Supervisory board: non-executive directors
Management board: Excecutive directors

Unitary board
Board of Directors: Executive and non-exec directors

Question 7

Agency Problem

Answer 7

Conflict of interest between principal and agent
• Stockholders (principals) hire managers (agents) to run the company, represent their interest
• In large corporations, this means that managers effectively control the firm separation of ownership and control!

Question 8

Resolving the agency problem - managing the managers:

Answer 8

Managerial compensation денежные бонусы
• Incentives can be used to align management and stockholder interests
• The incentives need to be structured carefully to make sure that they achieve their goal
Corporate control вырастает авторитет
• Replacing management via proxy fights
• The threat of a takeover may result in better management
• Labor market for managers HAS some natural control
Other stakeholders