Who owns a corporation?
A corporation is a separate legal entity that is separate from its owners. The corporation has most of the rights and responsibilities that an individual has as an independent state. It has a right to make a contract and business as its name and possesses most legal obligations that are against an individual.
The shareholders are the legal owners of a corporation. The shareholders own some shares of that corporation and the call themselves as an owner, and they have the proprietor rights over the corporation. The shareholder can call himself an owner, irrespective of his holding percentage. The example of a corporation is Apple, Microsoft and FedEx.
Under the corporation, the owners are under the obligation limit up to the extent of their paid up capital for the number of shares they hold. They are not under any obligation to pay extra for their personal properties because of its separate legal entity concept of the corporation.
What is the process whereby the owners control the firm’s management?
The shareholders have two rights in the corporation: their first right to have a share in after tax profits of the corporation and other is to vote to elect a director.Under corporation arrangement the shareholders elect directors who have the control over the management and the decision making process of the corporation.
Election of a director gives shareholders an opportunity to control the decisions of the corporation along with control the management by electing an appropriate candidate.
Corporation control process is a good example of agency relationship. In this process, shareholders are the principals and the directors, they appoint the agents of the shareholders who work on behalf of the shareholders.Agents work forward to secure the best interest of his principal and the undergarment obligation that their interest do not conflict with the interest of the principal during the course of conduct of their duty as agents.
Under the process an owner, he takes part in business activities by electing himself as a director if he holds a significant number of shares to elect himself as a director.The principal becomes an agent as well for himself and for other shareholders of the corporation.The shareholder is under consideration that his best interest will be secured by the elected director.
Can the goal of maximizing the value of the stock conflict with other goals? If so, what kinds of other goals might be considered?
Yes, the stock price maximization does conflict with the other goals of the goals of other stakeholders. Shareholders are not only stakeholders of the corporation, therefore, it is required that other stakeholders must also be considered to proceed its business.
The stock price increases through the history of higher payment of dividends and good corporate profits of the corporation for the reporting period.
Management and other stakeholders of the corporation have their goals and value that conflict with the goals of maximizing stock price. The first conflict is dividend payments. Dividend payment also decreases the stock price as well because it has the nature drawings that decrease the capital of a business, and the stock price represents the capital of the corporation. The decrease in capital decreases the stock prices. Some of the shareholders invest in specific stocks to have dividend payment which is necessary for the shareholder to meet its day to day expenses. The best example of such shareholder is a retired person who chooses stocks irrespective of annuities of a bank.
The management is working for their personal growth in their salaries and other benefits from the corporation. The increase in the salaries, bonuses and benefits to employees reduces profitability because it is an expense for the corporation, and ultimately its increase does not increases the profits at its maximum level.Blame for the Bailout-AIG Case Solution
The second conflict is research and development; the management is willing to have research and development to increase the revenue and sell a higher number of units, and it is possible with continuous innovation. The research gives a cost burden in present and benefits will flow in the future. The goal does not conflict with those shareholders who want growth of the company, and those shareholders that have concerns with the future prospect of the corporation. The conflicting situation arises when the shareholders who exist for the short term growth want benefits, and they do not have any concern with future and they want to increase profitability in present to have dividend and capital appreciation...........................
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