Sizes and types of firms 3.1.1

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6 Terms

1
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What are some types of business ownership?

  • Public limited companies: companies listed & traded on a stock market

  • Private limited companies: Shares are privately held & privately traded

  • Nationalised corporations: Businesses where the government is the majority/ shareholder

  • Social enterprises: Businesses whose profits are reinvested to help fund social projects

  • Co-operatives & Partnerships: Each member of the business has an equal stake. Partnerships are employee-owned firms

2
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What are nationalised businesses?

State owned and operated by the government., established to provide goods or services that are of strategic importance or in public interest

3
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What is the divorce of ownership and control?

When the ownership of a company, represented by its shareholders, is separate from control over the companies operations and decision making, which is typically done by the management or executives.

4
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What are some characteristics to a Public Limited Company (PLC)?

  • Limited Liability: Shareholders; liability is limited to the amount they have invested in a company

  • Capital and Shareholders: PLCs raise capital by issuing shares to the public

  • Publicly Traded: PLCs list their shares on one or more stock exchanges.

  • Regulatory Requirements: PLCs are subject to stringent regulatory requirements including financial reporting, disclosure, ad corporate governance standards

5
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What is the principal agent problem (agency problem)?

Arises when there is a divergence of interests between the principal (owner or shareholder) and the agent (a person hired to act on behalf of the principal)

6
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How is the principal agent problem overcome?

  • Performance-based incentives: add compensation for an agents achievement of performance meeting an organisations objective

  • Stock options and equity ownership: granting stock options or equity ownership to employers and managers, encourages working towards increasing shareholder value

  • Effective corporate governance: Strong board of directors play a crucial role in overseeing managements decisions