Question

Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?  

Answer 1

Corporate Control is ultimately in hands of stockholders. They elect board of directors, who hire and also fire people from management. Lets take example of company " APPLE"  Even though steve jobs was a founder of the corporation and was responsible for everything but there came a time when shareholders, with their elected directors throw out Steve and said this company is better without him.

This mechanism with which sad shareholders act to replace management is known as proxy fight. A proxy fight is known to be developed only when shareholders seek proxies to replace the existing people, and thereby replace management.

Agency relationship means one person or entity is given right to act on behalf of other person or entity. Mainly it is an artificial entity. It means, it is legally said to be separate entity, but it does not exist apart from its management and employees. Therefore, all 'corporate actions' are those which are taken by the management or employees on behalf of corporation. The legal documents which creates the company can't act on their own.