1.

Make a comparison for the three types of legal structures:

Sole Trader Partnership Limited company

Unlimited personal Unlimited personal Limited liability.

Degree of Personal liability. liability.
Liability

Owner personally Decision making Between

Willingness to makes all issues may exist, as shareholders.
share decision decisions related there might be no
making powers to the company. formal agreement.
and risks

Personal funds. Raised by the Capital raised from

Cost of partners or from the shareholders.
establishing the bank.
business

Not required. No registration Categorized as:

The legal requirement.
requirements – - Public limited
provision of public company.
information - Private limited
company.

Personal income Income tax, VAT. Corporation tax.

The taxation tax and value
position added tax.

Company law and

Commercial articles of
needs, including association.
access to capital

Establish a shared Turn to limited Raise more capital

Business business or companies. from shareholders.
continuity approach a
different business
 venture like
franchising.

2. Explain the source of conflicts between shareholders and managers. What mechanism can the
company employ to avoid these conflicts?

Conflicts between shareholders and managers may come from various sources. It can be seen that
most cases in which shareholders conflict with managers stem from different working purposes of
these two. Managers are usually being hired by a board of shareholders to run the company for
their own sake, however, those sake may go against the manager’s wish. For example, a manager
wants to prove his/her management ability, so he/she tries to convince the board of stakeholders to
mobilize capital for a potential project. This unfortunately does not meet the shareholders’
agreement, and the manager fails to fulfill his/her needs. Moreover, limited benefit along with too
much responsibility makes managers no longer dedicated to their work, which might decrease their
job satisfaction and reduce the company’s productivity. On the other hand, disputes over who is the
one who really runs the company is another reason. Shareholders are ones who have money to run
the company, but unlike the manager team, they are not in charge of administering the
organization. Nevertheless, stakeholders, especially ones with a huge number of shares, profess to
have all the right to rule the company and vice versa. To solve these problems, the company should
have their own regulations about the relationship between shareholders and managers, as well as
their rights and responsibility. This must be publicized within the company, attached with clear
punishment if any violations appear.