A Company is Not the Property of Its Shareholders
1. INTRODUCTION:
In this report I am going to discuss one new concept of Company which is whether a company is the property of its shareholders or not. Shareholders of a company have their specific rights which are ensured by law . First I will explain about what shareholders of a company are able to do and than about the ethics and social responsibility of the company which will help to come up with a decision for this argument.
History discovers that although some forms of companies are thought to have existed during Ancient Rome and Ancient Greece, the closest recognizable ancestors of the modern company did not appear until the second millennium. Early companies were purely economic ventures; it was only belatedly realized that an incidental benefit of holding joint stock was that the company's stock could not be seized for the debts of any individual member .
Previously company was thought as the property of its shareholders but now according to the new socio-economic thinking, is a social institute which has responsibilities towards society, not only it has responsibilities towards the workers but also towards the consumers and other members of the community .
2. PART A: DEFINITIONS AND PHILOSOPHERS’ VIEW
Lord Justice Lindley defines a company as follows: By a company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it for a common purpose .
Companies are distinguished for legal and regulatory purposes between public companies and private companies . And public companies may be classified into three types; a) companies limited by shares, b) companies limited by guarantee and c) unlimited companies. There cannot be a private company with unlimited liability.
3. PART B: THE LEGAL STATUS OF SHAREHOLDER RIGHTS
A shareholder (or stockholder) is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. Companies listed at the stock market are expected to strive to enhance shareholder value .
Shareholders have right to vote (usually one vote per share owned) on matter such as election of Directors , Fundamental Transactions , Proxy Rules etc.; sell their share at any times to generate profit as well as the right to share in distributions of the company's income, the right to purchase new shares issued by the company, and the right to a company's assets during a liquidation of the company .
The role of business in society has been one of the major topics of discussion over the past few decades. People often have a pre-conceived notion about business that their sole purpose is to generate profit, but there are non-profit organizations that are socially responsible and works for the betterment of the society. A business can be defined as a commercial activity performed by organizations while non-profit entities also engage in business activities for several social and economic causes. Businesses can range from individually owned companies, small/medium sized enterprises to multinational organizations (Investopedia, 2009). In hindsight to the early developments of business, a simultaneous progress is evident in the human society and civilization. During the early days, people engaged in exchange of goods and services between one another which is also called as the barter system. There is also plenty of evidence suggesting that trade was done among different ancient civilizations such as India, China and Egypt (Kumar, 2012). As a result, so many barriers between countries were eliminated and helped to create a strong business relationship between one another. Since then, business evolved into a much organized and advanced entity that has been influencing the society in a radical way. It is important to analyse the different aspects of business and its purpose in the society. Ethics in business, corporate social responsibility, impact of globalization in society and the overall objective of business in society will be discussed further in the essay.
This paper will have a detailed discussion on the shareholder theory of Milton Friedman and the stakeholder theory of Edward Freeman. Friedman argued that “neo-classical economic theory suggests that the purpose of the organisations is to make profits in their accountability to themselves and their shareholders and that only by doing so can business contribute to wealth for itself and society at large”. On the other hand, the theory of stakeholder suggests that the managers of an organisation do not only have the duty towards the firm’s shareholders; rather towards the individuals and constituencies who contribute to the company’s wealth, capacity and activities. These individuals or constituencies can be the shareholders, employees, customers, local community and the suppliers (Freeman 1984 pp. 409–421).
Corporate governance implies governing a company/organization by a set of rules, principles, systems and processes. It guides the company about how to achieve its vision in a way that benefits the company and provides long-term benefits to its stakeholders. In the corporate business context, stake-holders comprise board of directors, management, employees and with the rising awareness about Corporate Social Responsibility; it includes shareholders and society as well. The principles which...
This particular statute allows for corporations and such to obtain several, but not all, constitutional rights as any person or persons. In particularly own property, sue and be sued under criminal and civil law, enter contests. Moreover, because corporations and such are considerate as “person”, business has the legal rights for its debts and damages. On the contrary, persons who are employed by a particular association are liable for their own misconduct and law-breaking while acting on behalf of a corporation. In addition, corporation has rights for its own actions, has rights such as: limited free speech and to advertise their product ("The Rights of Corporations," 2009). Likewise, businesses have the responsibility to elect a CEO, provide continuity; increase profits, social responsibilities, and manages recourses effectively (“Functions & Responsibilities of a Corporation").
There is a link between corporate social responsibility and the key principles of the stakeholders, which a company should follow to be responsible to its stakeholders. The first stakeholder is environment and the key principle used for it is not damage the environment for example, recycling, dealing correctly with their wastes and emissions. The second stakeholder is the employees. The key principle for the employees is companies providing safe and health working conditions for their staff. Moreover, the employees earn an appropriate salary for ...
Common stock ownership has the benefit of allowing its shareholders to vote on the organization's board of members. Usually, one share of common stock equates to one vote. Companies sell common stock through public offerings, and it's traded among investors on the secondary market. Share...
The Principle of Separate Corporate Personality The principle of separate corporate personality has been firmly established in the common law since the decision in the case of Salomon v Salomon & Co Ltd[1], whereby a corporation has a separate legal personality, rights and obligations totally distinct from those of its shareholders. Legislation and courts nevertheless sometimes "pierce the corporate veil" so as to hold the shareholders personally liable for the liabilities of the corporation. Courts may also "lift the corporate veil", in the conflict of laws in order to determine who actually controls the corporation, and thus to ascertain the corporation's true contacts, and closest and most real connection. Throughout the course of this assignment I will begin by explaining the concept of legal personality and describe the veil of incorporation. I will give examples of when the veil of incorporation can be lifted by the courts and statuary provisions such as s.24 CA 1985 and incorporate the varying views of judges as to when the veil can be lifted.
According to Corporation Act 2001 s124(1), it illustrates that ‘’A company has the legal capacity and powers of an individual both in and outside the jurisdiction” . As it were, company as a legal individual must be freely with all its capital contribution shall embrace liability for its legal actions and obligations of the company’s shareholders is limited to its investment to the company. This ‘separate legal entity’ principle was established in the case of Salomon v Salomon & Co Ltd [1987] as company was held to have conducted the business as a legal person and separate from its members. It demonstrated that the debt of company is belonged to the company but not to the shareholders. Shareholders have only right to participate in managing but not in sharing the company property. Besides ,the Macaura v Northern Assurance Co Ltd [1925] demonstrates that the distinction between the shareholders and company assets. It means that even Mr Macaura owned almost all the shares in the company, he had no insurable interest in the company’s asset. The other recent case is the Lee v Lee’s Air Farming Ltd [1961] which illustrates that the distinct legal entities between employee ad director allows Mr.Lee function in dual capacities. It resulted that the corporation can contract with the controlling member of the corporation.
A registered company, as an artificial person is separate from its members and exists only by virtue of the Companies Act under which it is incorporated. When a business is incorporated, it becomes a separate legal entity and, therefore, can be sued and sue without affecting the shareholders personal assets. This was established in “Salomon v A Salomon Co.Ltd”. Separate legal personality is known as the veil of Incorporation. This protects the shareholder and places the responsibility of the company onto the directors. These duties are outlined in the Companies act 2014.
When the problem became serious two main views formed: the “narrow” view and the “broader” view, based on different ideas. The “narrow” view is based on the proposition that corporations have no social responsibility and they have only one main purpose, to make a profit (Friedman, 1970). So corporations should remain socially independent and all conflicts must be solved through the individual responsibility concept. On the contrary the “broader” view states that corporations have social obligations as all existing participants of market, persons and entities are tied together and are mutually dependent. So corporations cannot ignore some serious events or problems, which take place, and must help society, as profit is not their single purpose.
Corporate Social Responsibility (CSR) is a commitment of businesses to developing policies that incorporate responsible practices into daily business activities to improve the wellbeing of the society. Many people are constantly debating whether or not CSR should be legally recognized or not. Some people think CSR should not be enforced at all and they think CSR is interfering with the laissez-faire, as it is to create an environment in which businesses are not free from government intervention. People who support CSR say that CSR helps increasing business profit for owners and at the same time it improves the quality of life of businesses’ employees, communities and the society. This paper will seek to prove that CSR is valid means of promoting workers rights, labor rights, consumer protection and respect for local communities as well as discussing the impact of CSR on society.
In the current time of growth and progression, individuals should know that how a business not only flourish but sustain itself. Making profit is one of the main targets of every corporates but it must not be the only one. When an individual builds a company in order to do business, they should be well aware of their contribution towards the society as well as their business and employees in it. It is total strategy of all. We should be able to realize every increment contributes of it. One of the major factors that affect a business is how well it participates in Corporate Social Responsibility. According to (Werther & Chandler, 2006) corporate social responsibility (CSR) refers to a business practice that involves participating in initiatives that benefits the society. In authenticity, there is a whole lot to argue about it. There are no major guidelines that decides either a business is participating in Corporate Social Responsibility; what might be considered a Business practicing CSR to some, can still not be accepted for it by others. CSR may be restrained a term which his highly flexible. This paper will discuss about Corporate Social Responsibility and its
According to Carol Padgett (2012, 1), “companies are important part of our daily lives…in today’s economy, we are bound together through a myriad of relationships with companies”. The board of directors remain the highest echelon of management in any company. It is the “group of executive and non-executive directors which forms corporate strategy and is responsible for monitoring performance on the behalf of shareholders” (Padgett, 2012:1). Boards are clearly critical to the operation of companies and they are endowed with substantial power in the statute (Companies Act, 2014). The board is responsible for directing and steering the company. The board accomplishes this by business planning and risk management through proper corporate governance.
...can be an arbiter of business responsibility to society through the application of tax incentives or tax credits. In good corporate governance, the management should be able to meet their social responsibilities, these include making sure that their products are not hazardous to people and to the environment, sharing their profits for the good of the community as a natural person or human being would do, donating to social causes, organizing activities to benefit the community.
Corporate governance is the set of guidelines that determines the control and organization of a particular company. The company’s board of directors is in charge of approving and reviewing changes to this set of formally established guidelines. Companies have to keep in mind the interests of multiple stakeholders, parties who have an interest in the company. Some of these stakeholders include customers, shareholders, management, and suppliers. Corporate governance’s focus is concentrated on the rights and obligations of three stakeholder groups in particular: the board of directors, management, and shareholders. Corporate governance determines how power is split between these three stakeholders. A company’s board of directors is the main stakeholder that influences the corporate governance of a company (Corporate Governance).