Question

Why do corporations exist? Are they supposed to serve Shareholders first and foremost with their decisions or are they supposed to satisfy the Stakeholders?

minimum 250 words

Answer 1

There are actually various reasons for the existence of a corporation:

a. To raise capital by selling the shares. A corporation as a legal entity helps in splitting the ownership, which cannot be done by an individual.

b. Corporations exist to eliminate personal liability. Let us understand with the help of an example. If one is a business owner and his product cause a loss to someone, instead of him being held responsible, the company is sued. It would be very inconvenient to address each of the stockholders concerned.

c. The most important purpose, to make a profit. Everything else is secondary. If there is no profit, there is no business.

Earlier there used to be a notion that a corporation should satisfy the shareholders first as they own part of a public company through shares of stock and thus helps in the profitability of a corporation. But recently we have seen a huge change that moves companies away from the age-old philosophy that companies’ main goal is to look after shareholders. Most business leaders are working to produce income and return capital to shareholders, but this is being achieved by the best run businesses.

They always put more priority to the customers and invest in the communities and the employees and promise to build long-term value. The company should treat suppliers equally and ethically, support the people in the communities, and protect the environment by promoting sustainable business practices, creating long-term value for shareholders, who can provide the capital that enables businesses to invest, expand and innovate.