Corporate governance & Business Organisations

What is corporate governance?

• concerned with holding balance between economic & social goals and between individual & common goals

• distribution rights & responsibilities among diff participants in organisation

• having high level ethics & integrity

• building competent board

What is the UK corporate governance code?

• Comply/ explain approach

• Chairman should be separate from CEO- avoid unrestricted powers

• Balanced board structures- avoid executive directors dominating

• At least 3 NED’s in audit committee

What are the issues with corporate governance?

• Managers not normally owners of company

• Managers report to owners

• Other people intend to use financial statements to draw conclusions about company

What is the Agency Theory?

1. Companies owned & managed by same people

2. Expansion required investors

3. Delegated running of companies

4. Separation of goals

5. Agency problems

What are the advantages of governance code?

• Reduce fraud & corruption

• Global investors pay a premium

• Reduces risk potential losses to shareholders

• Better performance

What are disadvantages of governance code?

• Reactionary rather than proactive

• Impact on variable

• Restricts directors’ power

• doesn’t stop fraud

Legal Liability

• Sole trader- 1 person unincorporated business

• General partnership- partners unlimited liabilities for debt, they share losses & profits

• Limited Liability partnership- Separate legal personality & legal liability of partners limited

• Limited company- Separate legal personality & legal liability shareholders limited to paid up value of their shares

What is a LISTED company?

• Listed on stock market

• Trading publicly

• Unlimited numb shares

What is an UNLISTED company?

• Owned by founders, managers/ private investors

• Don’t trade publicly

• Can have unlimited shares

What are the consequences of being a separate entity?

• Management separate from ownership

• Company owns its own property

• Company liable for it’s own debts

What is Companies House?

• Deals with regulation & incorporation of limited liability partnerships & limited companies in UK

• Inspect & maintain all info on LLPs & Limited companies

• Info can be accessed by general public & businesses

What duty do partners have to each other?

• Owe each other duty to act honestly for benefit of partnership

• They’re agents of firm & other partners

• Bound by obligations agreed in agreement

• Bound by specific duties set out in partnership act 1890

What is the view of corporation?

• Corporations considered completely separate from individuals who own & manage business

• Legal concept separating actions of organisation from actions of shareholder

• Protects them from being personally liable from companies debt

What is Lifting the veil?

• Fraud/ conduct common ground when court lifts corporation veil

• Lifting veil means certain circumstances court can look through company to identify shareholders

What is Company Administration?

• Company can be put into administration by filing at court a notice of appointment & certain specified supporting documents

• Procedure may be commenced by either company/ directors

What is Members voluntary liquidation?

1. Special resolution

2. Appoint liquidator

3. Statutory declaration of solvency

4. Liquidators report

5. Liquidators final accounts

What is Creditors voluntary liquidation?

1. Special resolution (liquidation starts here)

2. Statement of affairs back to creditors within 7 days

3. Members meeting- appoint liquidator

4. Creditors meeting- members send notice to creditors for their consent & decision

What is Compulsory liquidation?

1. Called normally when company cannot pay debts

2. Official receiver appointed by courts

3. Liquidation starts from petition date

4. Statement if companies affairs produced

5. Members & creditors meeting

6. FINAL creditors meeting

What is a secured creditor?

• Entitled to be repaid from proceeds of secured assets of company

• May claim as an unsecured creditor for any balance

• Once company has repaid its secured liabilities the return to unsecured creditors my be very little, if anything

What is order of payment?

• Secured creditors with fixed charges

• Liquidators expenses

• Preferential creditors- all ranking equally

• Secured creditors with floating charges