Corporate Governance Exam 1 Study
Guide
Sole Proprietorship - answer Owned by only one person who gets all profit sharing and
all the capital ownership. It is a form of pure worker ownership. Most have only one
employee, the owner and are this a form of self-employment. (Although note, this kind
of ownership can have employees)
(There is no limited liability)
Partnership - answer Partners divide up the ownership (can be 50/50 or 25/25/25/25 or
in any other proportions) and have SHARES. Each partner is responsible for sharing the
profits AND losses and decisions with the other partners according to their shares.
(There is NO limited liability)
Main Features of the Corporation - answer1. A corporate charter
2. Shares ( which allow fractionated ownership and diversification);
3. A board of directors (selected by shareholders)
4. Executive management (selected by board of directors)
5. An annual shareholder meeting;
6. Limited liability (the shareholder can only lose what she/he pays to buy a share even
if the corporation loses money, goes bankrupt, defaults in loans)
Limited liability - answerThe shareholders can only lose what she/he pays to buy a
share even if the corporation loses money, goes bankrupt, defaults in loans.
Joint-Stock Company - answerThis is another name for a corporation used overseas.
Separation of Ownership and Control in the Corporation - answerThe people who own
the corporation (called the shareholders or investors or owners or stockholders or
principals) do not manage it while the board and executives who on average own less
than 3% of the corporation, manage and control it on a day to day basis. This is the
dilemma or corporate governance.
Stock Market or Publicly-Traded Corporation - answerCompany in which you can
purchase the shares/stock of the company on a public stock exchange so without
asking anybody's permission you can buy and sell shares.
Closely-held Corporation - answerThis is a corporation whose stock/shares cannot be
purchased unless you ask the permission of one of the owners who are "close" to each
other. It typically refers to family businesses. The shareholders often have an
agreement that they will not sell to anyone unless everyone agrees. This helps maintain
family control. They COMBINE ownership and control to a greater extent.
, Stock Option - answerRight to buy a share of stock for typically ten years at the price
that the stock trades sometime in the future.
Shareholders Resolution - answerA resolution at the shareholder meeting where
shareholders vote on
1. a change to the charter of the company
2. a directive to management, such as approval of a employee share plan for executives
3. approval of the auditing firm
4. an approval of an outside shareholder's proposal (example: environmental
responsibility)
Employee stock ownership - answerFirst emerged in American publicly-traded
corporations during the "welfare capitalism movement" of the 1920s when industrialist
such as John D. Rockefeller Jr. wished for capitalism to share more of its benefits with
employees for a variety of reasons and designed new forms of HR and new
employment policies, some frankly meant for fight unions.
Because workers own most of corporate America through their pension funds and can
influence governance. - answerWhy does Labor Studies and Employment Relations
field needs to understand corporate governance?
Managerial Capitalism - answerDescribes a system developed after the founders of
many stock market companies did not have family-owner successors (daughters or
sons) to run the company and selected executive managers who own less than 1-2% on
average of the corporation to run the company and they thereby separated ownership
from control. Now this happens as a matter of course in many companies.
Blockholder - answerA shareholder who owns more than 5% of the company's
outstanding stock.
Institutional Investors - answerInstitutions not persons who own shares in companies,
often collecting the shares from public (such as the Wisconsin Teachers Pension Plan)
and private pension plans (such as union pension plans), college endowments, hedge
funds, 401k retirement plans, or the shares they hold in customer accounts (for
example, Fidelity Investments of Boston). They take the pension savings from
companies and workers and governmental units and invest them for returns in order to
pay out these pensions later
Mutual Fund - answerFund whose managers takes investors money and buys and
manages many different shares of different corporations as one fund.
Socially responsible investing - answerMainly generally used today to describe investing
in corporations that meet certain criteria fro broad social and environmental goals.
Guide
Sole Proprietorship - answer Owned by only one person who gets all profit sharing and
all the capital ownership. It is a form of pure worker ownership. Most have only one
employee, the owner and are this a form of self-employment. (Although note, this kind
of ownership can have employees)
(There is no limited liability)
Partnership - answer Partners divide up the ownership (can be 50/50 or 25/25/25/25 or
in any other proportions) and have SHARES. Each partner is responsible for sharing the
profits AND losses and decisions with the other partners according to their shares.
(There is NO limited liability)
Main Features of the Corporation - answer1. A corporate charter
2. Shares ( which allow fractionated ownership and diversification);
3. A board of directors (selected by shareholders)
4. Executive management (selected by board of directors)
5. An annual shareholder meeting;
6. Limited liability (the shareholder can only lose what she/he pays to buy a share even
if the corporation loses money, goes bankrupt, defaults in loans)
Limited liability - answerThe shareholders can only lose what she/he pays to buy a
share even if the corporation loses money, goes bankrupt, defaults in loans.
Joint-Stock Company - answerThis is another name for a corporation used overseas.
Separation of Ownership and Control in the Corporation - answerThe people who own
the corporation (called the shareholders or investors or owners or stockholders or
principals) do not manage it while the board and executives who on average own less
than 3% of the corporation, manage and control it on a day to day basis. This is the
dilemma or corporate governance.
Stock Market or Publicly-Traded Corporation - answerCompany in which you can
purchase the shares/stock of the company on a public stock exchange so without
asking anybody's permission you can buy and sell shares.
Closely-held Corporation - answerThis is a corporation whose stock/shares cannot be
purchased unless you ask the permission of one of the owners who are "close" to each
other. It typically refers to family businesses. The shareholders often have an
agreement that they will not sell to anyone unless everyone agrees. This helps maintain
family control. They COMBINE ownership and control to a greater extent.
, Stock Option - answerRight to buy a share of stock for typically ten years at the price
that the stock trades sometime in the future.
Shareholders Resolution - answerA resolution at the shareholder meeting where
shareholders vote on
1. a change to the charter of the company
2. a directive to management, such as approval of a employee share plan for executives
3. approval of the auditing firm
4. an approval of an outside shareholder's proposal (example: environmental
responsibility)
Employee stock ownership - answerFirst emerged in American publicly-traded
corporations during the "welfare capitalism movement" of the 1920s when industrialist
such as John D. Rockefeller Jr. wished for capitalism to share more of its benefits with
employees for a variety of reasons and designed new forms of HR and new
employment policies, some frankly meant for fight unions.
Because workers own most of corporate America through their pension funds and can
influence governance. - answerWhy does Labor Studies and Employment Relations
field needs to understand corporate governance?
Managerial Capitalism - answerDescribes a system developed after the founders of
many stock market companies did not have family-owner successors (daughters or
sons) to run the company and selected executive managers who own less than 1-2% on
average of the corporation to run the company and they thereby separated ownership
from control. Now this happens as a matter of course in many companies.
Blockholder - answerA shareholder who owns more than 5% of the company's
outstanding stock.
Institutional Investors - answerInstitutions not persons who own shares in companies,
often collecting the shares from public (such as the Wisconsin Teachers Pension Plan)
and private pension plans (such as union pension plans), college endowments, hedge
funds, 401k retirement plans, or the shares they hold in customer accounts (for
example, Fidelity Investments of Boston). They take the pension savings from
companies and workers and governmental units and invest them for returns in order to
pay out these pensions later
Mutual Fund - answerFund whose managers takes investors money and buys and
manages many different shares of different corporations as one fund.
Socially responsible investing - answerMainly generally used today to describe investing
in corporations that meet certain criteria fro broad social and environmental goals.
