What is Corporation? PDF

What is corporation? is a legal entity that is separate and distinct from its owners. It is created by individuals, shareholders, or other entities with the purpose of conducting business. Corporations have many of the same legal rights and responsibilities as individuals, such as the ability to o...

What is corporation? is a legal entity that is separate and distinct from its owners. It is created by individuals, shareholders, or other entities with the purpose of conducting business. Corporations have many of the same legal rights and responsibilities as individuals, such as the ability to own assets, incur liabilities, enter into contracts, sue and be sued, and pay taxes. corporation in law a corporation is defined as a legal entity that is created by statute and recognized as a separate legal "person" under the law. This entity is formed through a process known as Incorporation, and it has rights, responsibilities, and obligations distinct from those of its owners or shareholders. Shareholders Owners of the company who invest capital and have voting rights on major corporate decisions. Elect the board of directors, approve significant corporate changes (e.g., mergers), and hold the board accountable for its decisions. Board of Directors The group responsible for overseeing the company’s management and ensuring it acts in the best interests of the shareholders. Set corporate strategy and long-term goals. Monitor the performance of the executive team. Ensure financial transparency and compliance with regulations. CEO AND EXECUTIVES Address conflicts of interest and make key decisions like mergers or executive compensation. Implement the board’s strategy, manage resources, make operational decisions, and ensure that the company meets its objectives. They report directly to the board of directors. Stakeholders Any group or individual who can affect or is affected by the company’s actions. Types of Stakeholders: Employees: Expect fair wages, safe working conditions, and job security. Customers: Seek high-quality products or services at fair prices. Suppliers: Want fair contracts and timely payments. Communities: Concerned with the company’s environmental and social impact. Corporate Secretary An officer responsible for ensuring that the company complies with legal and regulatory requirements and managing board activities. Organize board meetings, maintain records, and ensure the board follows proper governance protocols. Auditors Ensure the integrity of financial reporting and compliance with laws and regulations. Internal Auditors: Assess and improve the company’s risk management, control, and governance processes. External Auditors: Independently verify the accuracy of financial statements and ensure they comply with relevant accounting standards. The Corporate Governance is the process of decision making and the process by which decisions are implemented in large businesses is known as Corporate Governance. Agency theory defines the relationship between the principals (such as shareholders of company) and agents (such as directors of company). According to this theory, the principals of the company hire the agents to perform work. The principals delegate the work of running the business to the directors or managers, who are agents of shareholders. The shareholders expect the agents to act and make decisions in the best interest of principal. On the contrary, it is not necessary that agent make decisions in the best interests of the principals. The agent may be succumbed to self-interest, opportunistic behavior and fall short of expectations of the principal. The key feature of agency theory is separation of ownership and control. The theory prescribes that people or employees are held accountable in their tasks and responsibilities. Rewards and Punishments can be used to correct the priorities of agents. This theory states that a steward protects and maximizes shareholders wealth through firm Performance. Stewards are company executives and managers working for the shareholders, protects and make profits for the shareholders. The stewards are satisfied and motivated when organizational success is attained. It stresses on the position of employees or executives to act more autonomously so that the shareholders’ returns are maximized. The employees take ownership of their jobs and work at them diligently. Stakeholder theory incorporated the accountability of management to a broad range of stakeholders. It states that managers in organizations have a network of relationships to serve – this includes the suppliers, employees and business partners. The theory focuses on managerial decision making and interests of all stakeholders have intrinsic value, and no sets of interests is assumed to dominate the others The Resource Dependency Theory focuses on the role of board directors in providing access to resources needed by the firm. It states that directors play an important role in providing or securing essential resources to an organization through their linkages to the external environment. The provision of resources enhances organizational functioning, firm’s performance and its survival. The directors bring resources to the firm, such as information, skills, access to key constituents such as suppliers, buyers, public policy makers, social groups as well as legitimacy. Directors can be classified into four categories of insiders, business experts, support specialists and community influentials. Transaction cost theory states that a company has number of contracts within the company itself or with market through which it creates value for the company. There is cost associated with each contract with external party; such cost is called transaction cost. If transaction cost of using the market is higher, the company would undertake that transaction itself. Political theory brings the approach of developing voting support from shareholders, rather by purchasing voting power. It highlights the allocation of corporate power, profits and privileges are determined via the governments’ favor. The Social Responsibility of Business to its Stakeholders ETHICS AND BUSINESS The Nature of Business Definition: Business refers to lawful activities engaged in by human beings which involves production and exchanging of goods and services as a means of livelihood or a source of profit. - Reasons why people go into business. Business caters to people’s and customers’ needs and wants. Business is a complex activity. Yet it is in these activities that a lot of unethical practices are made. P. Drucker “The primary responsibility of business is to look for customers and to satisfy their needs and wants.” M. Friedman “The only responsibility of business is profit maximization.” IMPORTANCE OF ETHICS IN BUSINESS Without ethics , business will be a chaotic human activity. People will make their own norms and moral standards. This will result into Ethical Subjectivism and Ethical Relativism. Therefore, what is good for one may not be good for another. (vice-versa) Ethics will help businessmen and managers solve moral issues and problems from the philosophical perspective even in the absence of laws. Myth #1: Ethics is a personal affair and not a public debatable matter. Myth #2: Ethics and business do not mix. Myth #3: Ethics in business is relative. Myth #4: Good business means good ethics. Myth #5: Business is a war The Relationship of Ethics and Business Business is an integral part of human society. (its activities must also be examined from the moral perspective.) In business, as in any other human endeavor, “what is legal may not necessarily be moral.” People tend to confuse legality with morality. Laws are insufficient. (Ethics is the unwritten law written in the hearts of men.) The Relationship of Ethics and Business In today’s technocrat-oriented business education, the trend is to train managers to maximize profits and to quantify the operations of business. Peter Drucker argues that “the enterprise is an organ of society and its actions have a decisive impact on the social scene.” Moral Reasoning in Business Ethical issues and problems affecting the organization must be solved by the manager. He needs a fundamental moral framework to come up with an acceptable moral judgment.