CORPORATE GOVERNANCE

Corporate Governance

Corporate Governance

Introduction

Corporate governance refers to the way that companies are governed or run. Corporate governance is important because it refers to the governance of what is arguably the most important institution of the capitalist economy. Johnston Birchall argues that it is useful to focus on three main issues when considering how organizations are governed (Staib & Staib, 2005). First, which individuals or groups are provided with membership rights. Membership rights might only be given to one class of people. The shareholder system of corporate governance is probably the most prominent example of this approach within the corporate realm. In these organizations, membership rights are only provided to those who supply financial capital to the firm. Membership rights might alternatively be provided to more than one class of people or groups. In the corporate arena, these bodies are usually said to have a stakeholder system of corporate governance. Alongside shareholders, typical stakeholders include employees, members of the local population, representatives from supplier firms, customers, and local government.

1- Brief Description of Type of Business

The structure your business assumes is important in determining your limitations and liabilities. Depending on the type of structure you choose (Staib & Staib, 2005), additional paperwork may be necessary to establish the business in any country or city. Following are the types of business.

Sole Proprietorship

A sole proprietorship is the form of business entity with the least amount of legal formalities. In a proprietorship, the owner assumes sole responsibility for the operations and finances of the business, including profit and loss. In the proprietorship form of business entity, the owner's personal property is tied directly to the business; therefore, the owner assumes unlimited risk of his personal assets.

"C" Corporation

Corporations are a separate entity from its owners. Corporations provide the shareholders with the most protection from liability and responsibility from debts and contracts. Profits for a corporation are taxed at the corporate level when the income is earned and is also taxed at the individual shareholder level.

"S" Corporation

An "S" Corporation is similar to a corporation in that it provides its shareholders with protection from liability. However, unlike a corporation, an "S" corporation is exempt from federal income tax. Instead the taxes are paid solely by the individual shareholders (Staib & Staib, 2005).

General Partnership

General Partnerships require an agreement between two or more individuals or entities to jointly own and operate a business. Profit, loss and managerial duties are shared among the partners, and each partner is personally liable for partnership debts. Partnerships do not pay tax, but must file an informational return, while individual partners report their share of profits and losses on their personal return. Short term partnerships are also known as joint ventures.

Limited Partnership

A limited partnership is a form of business organization that offers some of the partner's limited liability. It consists of a general partner who organizes and manages the partnership and its operations, and limited partners who contribute capital but have limited liability and assume no active role in day-to-day business affairs (Welford, ...