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Companies and financial accounting
Companies and financial accounting

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1.4.3 Centralised delegated management under a board structure

In very small limited companies, often the owner-shareholders are also directors and active managers. Larger limited companies have a larger number of shareholders, who will delegate the actual management of a company to professional managers (board of directors) (Armour et al., 2009, p. 11).

Delegated management causes the separation of the ownership of the company and the control of the company. In principle, the shareholders are supposed to monitor the directors to ensure that the directors are indeed acting in the best interests of the shareholders. As mentioned earlier, in practice, limited liability reduces the shareholders’ incentive to do so.

Company law in different countries places different emphasis on the responsibilities of the board of directors. Directors have a duty to promote the success of the company for the benefit of the shareholders.