Week 1 Discussion Forum
With no less than 300 words, post an initial reply to the question below Then please respond to at least two classmates post with a sentence or two about their post In most cases responding to the instructor posts will also count. Please note that you will not see your classmates messages until you create your initial post.
Online Forum Discussion:
An agency relationship occurs when a principal hires an agent to perform some duty. A conflict, known as an agency problem, arises when there is a conflict of interest between the needs of the principal and the needs of the agent.
Discuss the possibility of agency problems in a business that is a (a) proprietorship, (b) partnership with seven partners, and (c) corporation with 100,000 stockholders. Make you case and back up your opinions.
Post by
Mariscela Jaimes
The possibility of agency problems in a business that is:
(A) Proprietorship would be none as a sole proprietorship, also known as sole trader or individual entrepreneurship or proprietorship, is a type of enterprise that is owned and ran by one person. There is no legal distinction between the owner and the business entity so again, no agency problem can occur.
(B) Partnership with seven partners can either cause major agency problems or very little. It depends if the seven partners are all involved in the actual day to day decision making of the business which would have little chance to none of having agency problems. Now if some partners are investors and others run the operation of the business then there can be agency problems. Specifically because of some may not agree to the choices of others, there has to be a very strong partnership between these seven partners for there NOT to be major agency problems.
(C) Corporation with 100,000 stockholders would certainly have major agency problems. The reason I think this is due to the number of employees that are stockholders, and knowing that others are running the company leaves decisions in other peoples hands. So when you are one of those stockholders you dont have full control of what others that run the business do that will affect the business and then your stocks. As a stockholder you will want as much paid out (excess cash paid out in dividends) but the Sr. Leaders or others that run the company day in and day out will want to keep that excess cash to continue to grow the company. This is referred to principal-agent problem: Occurs when one person or entity, is able to make decisions and/or take actions on behalf of, or that impact, another person or entity: the principal.
References:
Wikipedia contributors. (2020, September 12). Principalagent problem. Retrieved October 20, 2020, from https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem