Submitted by: Submitted by js9497
Views: 506
Words: 3734
Pages: 15
Category: Business and Industry
Date Submitted: 08/16/2010 02:07 PM
1. Introduction
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Accounting scandals, insolvent companies and financial crisis let the question arise if the business system is built more on mistrust, cheating, deceit and fraudulent behaviour than on moral and ethic values. Thus it is argued that the shareholders’ as the owner of a company has little financial incentive to ensure that the managers involved behave legally, ethically or decently because in law they are personally untouchable1. But it could also be that managers who behave in a lawful, responsible and ethical manner do make better returns for their owners than those who cut corners or behave badly. 2. Shareholders financial incentives All private and public companies limited by shares have shareholder who capitalise the companies by providing money. Due to the principle of limited liability the share capital contributed by the shareholder represents the extent of his liability should the company go into liquidation. In this case of insolvency the shareholders will not collect any return of their capital. Also shareholders are in law untouchable it is self-evident that their financial interest must be more than just to avoid losing their whole investment. Shareholders provide their money to a company in order to get a financial return. The most common type of return is a dividend, expressed as so many pence per share, and paid to the shareholders related to the number of shares held by them2. According to Company Act 2006, s. 830 (1) the company may pay dividends only out of ‘distributions’. Under s. 830 (2) this means the company may pay dividends only out of its accumulated, realised profits. Many shareholders invest their money not only in the expectation of receiving an income in the form of a dividend but also in the hope that the value of the shares will increase, so they can make a profit on resale. It is necessary for both manners of receiving financial rewards– dividends and the increased share value – that the corporation prospers...