Stevenage Accountant T: 0845 643 1825 | E: info@eebusiness.uk.com


Accountant-Stevenage's blog

Risk management

THE IMPORTANCE OF RISK MANAGEMENT

Risk, in a business sense, is uncertainty. If uncertainty is not properly managed, then forward planning will be almost impossible, and the risk of business catastrophe will be great. Directors who fail to manage risk are failing in their duty to shareholders.



It is not just that things might go wrong … they may of course go right! If an organisation chooses to take no risk at all, it is likely that its return will not be very high.

Agency theory and transaction cost theory

AGENCY THEORY REVISITED

Agency relationships are caused when a principal employs someone (the Agent) to do something for them.
The potential problem is that the Agent may not act in the best interests of the principal:

Corporate governance – more detailed areas

THE ROLE OF DIRECTORS

Directors have a fiduciary duty, meaning a position of trust.
Directors could, for example, use their position for personal gain.
Their fiduciary duty is:

  • To disclose all information held.
  • To disclose any personal profits made from their position as director.
  • To disclose any potential conflicts of interest.

Non-executive directors:

CORPORATE GOVERNANCE

WHAT IS CORPORATE GOVERNANCE?

A BRIEF HISTORY OF UK COMPANIES (The South Seas Bubble)

  • In the early Eighteenth Century, the South Seas Company was granted exclusive trading rights in the South Seas (South American colonies) in return for helping to finance Government borrowing.
  • To help grow their operations, they looked for investors and issued shares.
  • Things seemed to be going well – more and more investors put money in.
  • There were expensive London offices – it all looked very successful.

A corporation

A corporation, on the other hand, is a business unit chartered by the state and legally separate from its owners (the stockholders). The stockholders, whose ownership is represented by shares of stock, do not directly control the corporation’s operations. Instead, they elect a board of directors to run the corporation for their benefit. In exchange for their limited involvement in the corporation’s operations, stockholders enjoy limited liability; that is, their risk of loss is limited to the amount they paid for their shares.

A partnership

A partnership is like a sole proprietorship in most ways, but it has two or more owners. The partners share the profits and losses of the business according to a prearranged formula. Generally, any partner can obligate the business pay the obligations. A partnership must be dissolved if the ownership changes, as when a partner leaves or dies. If the business is to continue as a partnership after this occurs, a new partnership must be formed.

 

sole proprietorship

A sole proprietorship is a business owned by one person.* The owner takes all the profits or losses of the business and is liable for all its obligations. Sole proprietorships represent the largest number of businesses, but typically they are the smallest in size.