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Questions and Answers
What is the primary role of the board of directors in a company?
What is the primary role of the board of directors in a company?
What is the key principle of corporate governance that requires the company to treat all stakeholders fairly and equally?
What is the key principle of corporate governance that requires the company to treat all stakeholders fairly and equally?
What is the primary difference between the Anglo-American model and the Japanese model of corporate governance?
What is the primary difference between the Anglo-American model and the Japanese model of corporate governance?
What is the role of stakeholders in a company?
What is the role of stakeholders in a company?
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What is the primary responsibility of the board of directors in a company?
What is the primary responsibility of the board of directors in a company?
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What is the key principle of corporate governance that requires the company to be transparent and disclose its activities and decisions to stakeholders?
What is the key principle of corporate governance that requires the company to be transparent and disclose its activities and decisions to stakeholders?
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What is the composition of the board of directors in a company?
What is the composition of the board of directors in a company?
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What is the primary right of shareholders in a company?
What is the primary right of shareholders in a company?
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What is the maximum amount of share capital that a company is authorized to issue?
What is the maximum amount of share capital that a company is authorized to issue?
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Which type of shares have a fixed dividend rate and priority over ordinary shares in the event of winding up?
Which type of shares have a fixed dividend rate and priority over ordinary shares in the event of winding up?
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What is the issue of shares to a select group of people known as?
What is the issue of shares to a select group of people known as?
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What is the dividend paid out of profits during the financial year known as?
What is the dividend paid out of profits during the financial year known as?
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What requires approval from the shareholders in a general meeting?
What requires approval from the shareholders in a general meeting?
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What type of shares have a lower claim on assets and dividends compared to ordinary shares?
What type of shares have a lower claim on assets and dividends compared to ordinary shares?
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What is the issue of shares to existing shareholders in proportion to their existing holdings known as?
What is the issue of shares to existing shareholders in proportion to their existing holdings known as?
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What is the amount of share capital that has been paid up by shareholders?
What is the amount of share capital that has been paid up by shareholders?
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Study Notes
Corporate Governance
Definition
- Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled.
- It involves the relationships between a company's management, board of directors, shareholders, and stakeholders.
Key Principles
- Accountability: The board of directors is accountable to the company and its shareholders.
- Transparency: The company's activities and decisions should be transparent and disclosed to stakeholders.
- Fairness: The company should treat all stakeholders fairly and equally.
- Responsibility: The board of directors and management should act in the best interests of the company and its stakeholders.
- Stewardship: The board of directors and management should act as stewards of the company's assets.
Board of Directors
-
Roles and Responsibilities:
- Set the company's strategy and direction
- Oversee the management of the company
- Ensure compliance with laws and regulations
- Make key decisions on behalf of the company
-
Composition:
- Independent directors
- Executive directors
- Non-executive directors
- Chairperson
Shareholders
-
Rights:
- Right to vote on company matters
- Right to receive dividends
- Right to inspect company records
- Right to attend general meetings
-
Role:
- Provide capital to the company
- Hold the board of directors and management accountable
Stakeholders
- Definition: Any individual or group that has a vested interest in the company's success.
-
Examples:
- Employees
- Customers
- Suppliers
- Creditors
- Environment
- Community
Corporate Governance Models
- Anglo-American Model: Focuses on shareholder value and profit maximization.
- German Model: Emphasizes co-determination and worker participation.
- Japanese Model: Focuses on long-term relationships and social responsibility.
Corporate Governance Codes
- Definition: A set of guidelines or principles that outline the company's governance practices.
-
Examples:
- UK Corporate Governance Code
- US Sarbanes-Oxley Act
- Australian Securities Exchange (ASX) Corporate Governance Council Principles
Corporate Governance
Definition
- Corporate governance is the system of rules, practices, and processes that direct and control a company, involving relationships between management, the board of directors, shareholders, and stakeholders.
Key Principles
Accountability
- The board of directors is accountable to the company and its shareholders.
Transparency
- The company's activities and decisions should be transparent and disclosed to stakeholders.
Fairness
- The company should treat all stakeholders fairly and equally.
Responsibility
- The board of directors and management should act in the best interests of the company and its stakeholders.
Stewardship
- The board of directors and management should act as stewards of the company's assets.
Board of Directors
- Sets the company's strategy and direction
- Oversees the management of the company
- Ensures compliance with laws and regulations
- Makes key decisions on behalf of the company
- Comprises:
- Independent directors
- Executive directors
- Non-executive directors
- Chairperson
Shareholders
Rights
- Right to vote on company matters
- Right to receive dividends
- Right to inspect company records
- Right to attend general meetings
Role
- Provide capital to the company
- Hold the board of directors and management accountable
Stakeholders
Definition
- Any individual or group with a vested interest in the company's success.
Examples
- Employees
- Customers
- Suppliers
- Creditors
- Environment
- Community
Corporate Governance Models
Anglo-American Model
- Focuses on shareholder value and profit maximization.
German Model
- Emphasizes co-determination and worker participation.
Japanese Model
- Focuses on long-term relationships and social responsibility.
Corporate Governance Codes
Definition
- A set of guidelines or principles outlining the company's governance practices.
Examples
- UK Corporate Governance Code
- US Sarbanes-Oxley Act
- Australian Securities Exchange (ASX) Corporate Governance Council Principles
Share Capital
Definition
- Represents the amount of money raised by a company through issuing shares to its shareholders
Types of Share Capital
- Authorized Share Capital: Maximum amount of share capital a company can issue, stated in its Memorandum of Association
- Issued Share Capital: Amount of share capital issued to shareholders
- Called-Up Share Capital: Amount of share capital called up by the company from its shareholders
- Paid-Up Share Capital: Amount of share capital paid up by shareholders
Classes of Shares
- Ordinary Shares: Carry voting rights and are entitled to dividends
- Preference Shares: Have a fixed dividend rate and priority over ordinary shares in winding up
- Deferred Shares: Have a lower claim on assets and dividends compared to ordinary shares
Issue of Shares
- Private Placement: Issue of shares to a select group of people
- Public Issue: Issue of shares to the general public through a prospectus
- Rights Issue: Issue of shares to existing shareholders in proportion to their existing holdings
Alteration of Share Capital
- Increase in Authorized Share Capital: Requires approval from shareholders in a general meeting
- Reduction of Share Capital: Requires approval from the court and fulfillment of certain conditions
Dividend Payment
- Interim Dividend: Dividend paid out of profits during the financial year
- Final Dividend: Dividend paid out of profits at the end of the financial year
- Dividend Distribution: Dividend paid out of profits, subject to certain restrictions
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Description
Learn about the key principles of corporate governance, including accountability and transparency, and how they impact a company's direction and control.
