Ownership & Control (week 2)

Question 1

What are the different legal forms of businesses

Answer 1

There are several legal forms of businesses, including sole proprietorship, partnership, private limited company (LTD), and public limited company (PLC).

Question 2

What does “limited liability” mean in the context of business?

Answer 2

Limited liability means that only the invested capital is at risk in case of business failure, and personal assets, like a house, are not used to settle business debts

Question 3

What challenges arise in managing large businesses

Answer 3

Challenges include managing a large number of employees (scale), overseeing diverse business units (scope), and dealing with information asymmetry.

Question 4

How do CEOs impact multinational enterprises (MNEs)

Answer 4

: In MNEs, CEOs make international strategic decisions, manage international human resources, stimulate international innovation, and balance local responsiveness with global integration.

Question 5

What is agency theory, and who are the principals and agents in this theory?

Answer 5

Agency theory focuses on principals (owners) and agents (managers). It deals with situations where the interests of principals and agents can differ, leading to agency issues and potential opportunistic behavior.

Question 6

What is one monitoring tool used to align interests between principals and agents?

Answer 6

CEO compensation, especially the pay-performance relationship, is a monitoring tool. CEOs are rewarded for achieving performance goals that align with shareholders’ interests.

Question 7

How is CEO compensation structured

Answer 7

CEO compensation typically includes baseline salary, performance-based cash bonus, long-term incentive plans, restricted stock awards, stock options, and pension contributions.