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A Blueprint for Corporate Governance by Fred Kaen

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CHAPTER 2

THE GOVERNANCE STRUCTURE OF AMERICAN CORPORATIONS

A SCHEMATIC CONTRACTUAL GOVERNANCE STRUCTURE

Figure 2-1 contains a schematic model of the American corporation. The owners of the corporation, who are placed at the top of the diagram, supply equity (risk) capital to the company. The contractual nature of equity capital is that it confers property rights to the owners. These rights give the owners control over the acquisition and disposal of the company’s assets and claims on whatever assets remain after all other contractual claims on the firm, such as wages, salaries, debt service charges, and taxes, have been paid.

FIGURE 2-1 A CONTRACTING SCHEMATIC OF THE MODERN CORPORATION

With respect to the company’s day-to-day operations, ...

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