What is Corporate Governance?

Aug 29, 2012 by

Every country with a business segment has a number of standards or modes of operation for the businesses that are based or do business in the country. These models or standards are known as corporate governance.

Corporate governance is the system and structure by which a corporation is run. It is, like a government for a country, a system of allocating power among the shareholders and those that run the company. In some countries, the employees of the corporation are given a seat at the table in determining how the company is run.

One of the main purposes of corporate governance is to solve the agency problems. When a person is merely hired to run a company or corporation, he or she may make increasingly risky decisions because it is not his or her money that is being invested or played with by the company. As a result, the risky decisions may make the agent of the owners behave poorly.

Corporate governance puts a set of rules in place to constrain the actors or agents of the company. In the United States, each state is allowed or able to make its own rules for constraining the actions of managers of companies.

While each of the states has been able to make its own system, the vast majority of businesses are incorporated in Delaware. Delaware has been the state of choice of the majority of corporations for a number of reasons. The first is that its rules regarding corporate governance have been written in broad vague terms that can all be interpreted in a variety of ways. This makes it possible for a corporation to do mostly what it wants.

Next, the corporate governance statutes of Delaware are focused on contracts. As part of this, there are very few rules in the list of constraints that cannot actually be contracted away and avoided altogether, provided there is a contract stating that.

A third factor in Delaware’s overwhelming popularity is its case law body. Delaware has a large quantity of precedent and case law that can all be used to make decisions easier for a corporation. There is a lot of law that says what the rules actually mean and where the courts of Delaware stand in that regard.

Finally, Delaware has created a specialized judiciary system. The Chancery Court of Delaware, the special court, handles only corporate or business cases. This means that when or if a corporation is sued, it can be ensured of having a court that is well versed in the complexities of Delaware corporate governance law.

The Minneapolis business foundation lawyers [http://www.skjold-barthel.com] of Skjold Barthel are experienced in the field of corporate governance in Minnesota with years of experience to guide any new potential corporation through the incorporation process.

Joseph Devine

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