Corporations are a business form in which the owners are not involved in the day-to-day running of the business. This explains the phrase ‘separating ownership from control’. A management team is put in place to run the business profitably (Hooper, Davey, & Presscot, 2009). This team includes specialists such as Finance Managers, Marketing Managers, and IT Managers. They work full time to ensure that the owners’ objectives of wealth creation are achieved. The result of the management team’s hard work is distributed to shareholders in terms of dividends. This is after payment of interest, tax, and other operating expenses. For this reason, some scholars argue that shareholders benefit by getting dividends whereas they avoid the cost of running the corporation (Mirza, Holt, & Knorr, 2011). They do not put in their time or risk bankruptcy if the business is liquidated, unlike other business forms. A sole proprietor is liable for all business debt while shareholders are not. All these are benefits of separation of ownership from control (Gaffikin, 2008).
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The separation of ownership from control also benefits society. Jobs are created for professionals who manage corporations. This way, they can provide for their families. Secondly, profit earned is increased since the professionals are specialists (Deegan & Samkin, 2009). When corporations earn more profit, they pay more taxes to the government and thus enable the provision of services to the public. Finally, society gets to enjoy quality products from professionally run corporations (Drever, Santon, & McGoan, 2007).
Deegan, C., & Samkin, C. (2009). New Zealand Financial Accounting. Auckland: McGraw Hill.
Drever, M., Santon, P., & McGoan, S. (2007). Contemporary Issues In Accounting. Australia: John Wiley.
Gaffikin, M. (2008). Accounting Theory: Research, Regulation, and Accounting Practice. NSW: Pearson.
Hooper, K., Davey, H., & Presscot, S. (2009). Conceptual Issues In Accounting: A New Zealand Perspective. Melbourne: Cengage Learning.
Mirza, A. A., Holt, G., & Knorr, L. (2011). Wiley IFRS: Practical Implementation Guide and Workbook. Chicago: Wiley.
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