Agency Relationship between Shareholders and The Management

The shareholders are the real owners of the company through equity capital contribution. However, they may not be involved directly in the day to day running of affairs of the business. The shareholders may not have the necessary skills and expertise to manage the affairs of the business. On the hand they are likely not to have the time needed to run the day to affairs of the business. As a result, they appoint other parties to manage the affairs of the company or business on their behalf. The shareholders are principals while the management team is the agents.

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