Shareholders in Private and Public Limited Companies - Term Paper Example

Consider the functions of directors, company secretaries, auditors and shareholders. In what ways do they contribute to the operation of both privateand public limited companies? In running the company, each stockholder group plays a vital role, even though they have different responsibilities in it. Because of their impact, the overall company’s performance changes. Even though higher position includes more power, rights and responsibilities in the company, it is not the only influential group in the company. In this context, directors and stakeholders have the highest rank in the company and make the most important decisions for it. However, they are not alone in being important. In fact, auditors and company secretaries also have a direct influence in the business, because they rather differ in the nature of investment than in stakeholders’ corporate responsibilities. Therefore the given essay analyses the role of all these four groups of actors (directors, company secretaries, auditors and shareholders) in order to demonstrate the importance of each of them in operation of both private and public companies. Firstly, directors are the key actors for the company’s performance on market. In general, they are important because they create the policy of the company (Osemeke, 2014). In the circumstances of either private or public limited company, this role changes only slightly. In fact, private company may have sole director, while public limited company needs two or more directors (Rosenfalck, 2013). In addition, Directors Board becomes the only significant representative, if there is no existing controlling stakeholder in the company (Davies, 2010). Frequently, this situation appears in private companies (Rosenfalck, 2013). Furthermore, the directors of the company are trained to act their instructions or directions. For example, when there is a serious loss in capital of public company, directors have to gather an extraordinary general meeting not later than 56 days from the day of half or less capital reduction (Rosenfalck, 2013). According to Osemeke, (2014), failures and bankruptcies of the company are mostly to result an ineffective directors board. In this context, ineffective work of the board has been shown in a recent failures of big companies like Enron and HIH (Convill and Bagaric, 2004). Moreover, Davies (2010) said that directors should care and promote the company’s success and do independent actions. In fact, directors of public companies must be sure that they hire competent company secretary (Rosenfalck, 2013). Among the main flaws of directors that have a direct effect on the company’s performance, according to Osemeke (2014) “lack of training and induction or irrelevant skills”, for example, it is the responsibility of directors to be professional, because company believes in their potential by choosing him to be the leader. When Directors perform in a successful manner, Osemeke (2014) thinks the company “enhances board independence and good corporate performance.” Hence, the directors will be able to create a clear, independent, and complete company policy to apply it as vital duty of this position within the company. Secondly, the auditors duties are necessary to operate companies. Shortly, the roles of auditors has determined in evaluation of company’s accounting balance, because only they know the truth about the company. In this context, auditors can be internal or external. Although, both public limited and private companies often chooses to combine these two types in practice. Obviously, the external auditors increases their performance when work with directors and internal auditors in the same formation (Osemeke, 2014). Although, if it is small private company, it does not need auditors (Rosenfalck, 2013). Due to its size, it has an opportunity to to control its accounts by itself, because they are not so complicated. In bigger companies, the auditor has a lot of work in private and public limited companies. In fact, the list of duties of auditors is long. For example, audit committee is mostly busy not only selecting external auditors but also they control their activities according to the company’s interests. However, this type of control has certain dangers on the business environment. As the popular case of Enron bankruptcy has showed, the lack of veracity of finances leads to decrease of the protection from manipulation and insecurity of stakeholders and investments (Osemeke, 2014). Further, if the audit committee provides the certain standards, the auditors information would increase. Therefore auditors are very important for company to understand its real position on market, but it should be independent to make the business successful and stable. Thirdly, there are a several duties of company secretaries, company secretary is the closest person to the Board of Directors. Because of this position, he plays the main function of the company in general (Sharma and Dewan, 2007). Each public company must have a corporate secretary (Rosenfalck, 2013). To be specific, Osemeke (2014) wrote that secretaries help the directors boards to provide induction of new directors, compilation of board paper and ensuring that board decisions are clearly communicated to stakeholders; for example, helping is their main responsibility in the company. However, it was not common to deal with company secretaries as they are important people. In this context, private companies still do not have to appoint corporate secretary, if only their Articles require to do so (Rosenfalck, 2013). Basically, there is a qualified traditional workers who puts the corporate secretary in their positions depending on Board’s authority to the powerful person who influences decision-making process (Sharma and Dewan, 2007). Because of this change, the number in corporate responsibilities of this position has also grown. “He/she acts as a vital link between the company, Board, shareholders, government and regulatory agencies”, for example, poor performance of directors may appear because of the unqualified secretaries are working (Osemeke, 2014). In other words, these actors of the corporation are not simple employees for the company. Corporate secretary help to exchange information between directors and stakeholders well. But, if in private company there are no stakeholders only directors, they do not need corporate secretary. Also, he should not be so much qualified and experienced as in public company (Rosenfalck, 2013). Finally, the contribution of shareholders is significant for both private and public limited companies. Even though it is hard to analyse this definition, the role of stakeholders gains more attention in business literature in the recent years. Nowadays, there exists the specific ‘stakeholder theory’(Conchon, 2011). In this context, some authors believe that stakeholder value equals firm’s value. Even though this view is not sustainable for empirical research (Filch, 2006), stakeholders are very important for the company’s future. In general, Osemeke (2014) mentioned the importance of these actors as the main body of control within the company. In all public companies and in most private companies, directors have to have an annual general meeting and create with auditors the report for shareholders (Rosenfalck, 2013). In this context, Davies (2010) discusses how companies in different countries make it possible for stakeholders to have the real control on the Directors Board. Actually, their influence is so strong that directors start to be the agents of company’s stakeholders, even if stakeholders do not have a law to control directors (Davies, 2010). It is so, because stakeholders can intervene into the business of the company any time they want (Davies, 2010). In other words, shareholders are the highest authority in the company. Consequently, this situation means that stakeholders have more corporate duties and responsibilities. In fact, it becomes important for the scholars to define how dangerous is disintegration and independence of stakeholder group. Because of this, they cannot have corporate control in general and have power over the directors in particular. In other words, the most important thing about stakeholders is if they are able to create fast and unified decisions (Davies, 2010). In addition, Delias (2010) criticize the stakeholders that they do not build corporate responsibility and emotional element of life of the company. Furthermore, the contribution of these actors in company means that stakeholders must show corporate strategy and need to be able to react on the new problems in company quickly. In conclusion, it is evident that directors, company secretaries, auditors and shareholders have direct impact on company’s performance. In this context, it does not matter if the company is private or public limited entity. But, in private company it often happens that stakeholders and directors are the same persons, while in public limited company this positions mix. If it happens, the company may reject from corporate secretary and auditor. Otherwise, all the main responsibilities remain the same. In particular, directors watch how company works every day, but shareholders have to decide the strategic future of this company. In addition, corporate secretaries are the important people, because they take care of the communication between directors and stakeholders. Their proficiency is very important. Finally, auditors must tell the truth about the company’s finances, because it is needed not to allow its bankruptcy. In short, all the actors (directors, auditors, stakeholders and corporate secretaries) are very important. References: Conchon, A., 2011. Distinguishing ownership and control: shareholders as a key industrial relations actor in the collective regulation at company level. In: Industrial Relations European Conference, Beyond the Crisis: Industrial Relations and Sustainable Growth. Barcelona, 1-2 September 2011. Convill, J. and Bagaric, M., 2014. Why all Directors should be Shareholders in the Company: The Case Against ‘Independence’. Bond Law Review, 16(2), pp. 40-65. Davies, P., 2010. Introduction to Company Law. Second ed. Oxford: Oxford University Press. Delias, A., 2010. How Can Organizations Be Competitive but Dare to Care? Academy of Management Perspectives, 24(3), pp. 24-35. Filch, J., 2006. Measuring Efficiency in Corporate Law: The Role of Shareholder Primacy. Faculty Scholarship. Paper 1043. Pp. 637-674. Available at: [Accessed 9 May 2015]. Moore, D., Tetlock, P., Tanlu, L. and Bazerman, M., 2006. Conflicts of Interest and the Case of Auditor Independence: Moral Seduction and Strategic Issue Cycling. Academy of Management Review, 31(1), pp. 10-28. Olson, J., 1999. How to Really Make Audit Committees More Effective. The Business Lawyer, 54, pp. 1097-1111. Osemeke, L., 2014. Directors, Auditors and Secretaries Roles and Corporate Governance System: Identity Theory Perspectives. Corporate Ownership and Control, 12(1), pp. 543-556. Rosenfalck, S., 2013. Differences between private limited companies and public limited companies. EBL Miller Rosenfalck, Retrieved from: http://www.millerrosenfalck.com/2013/04/differences-between-private-limited-companies-and-public-limited-companies/ [Accessed 28 May 2015]. Sharma, J. and Dewon, A., 2007. Segment-Wise Role of Company Secretaries. In: ICSI (The Institute of Company Secretaries of Insia), 35th National Convention of Company Secretaries. Jaipur, 20-22 September 2007. pp. 45-54. Read More