Page info: *Author: Mathiesen, H. *Document version: 2.5. *Copyright 1997-2017, ViamInvest. Legal notice.



Table: Corporate capital and its property rights

 

Introduction: “The legal conception of property is that of a bundle of rights over resources that the owner is free to exercise and whose exercise is protected from interference from others”, Cooter and Ulen [1986, p.91]. The listed control rights are exclusively considered from the owners' point of view. The listing of rights is by no means exhaustive. It is only meant to be illustrative.

 

Equity capital: Usually stocks

Control rights

 

·         Voting rights: To fire and hire directors, to change the policy of the firm, to sell or liquidate the firm, to change the corporate charter, etc.

·         Rules that keep elections of directors relatively inhibited by managers.

·         Rights to acquire information about the firm’s financial situation, etc.

·         Right to sue managers for breach of duty.

·         The right to delay bankruptcy proceedings, e.g. the US chapter 11.

Rent rights

·         Limited liability.

·         The right to capture the residual cash flow.

·         The right to capture possible dividends.

·         Easy transfer of shares.

Debt capital: Bank loans or bonds

Control rights

 

·         The right to start bankruptcy proceedings in case of default.

·         The right to pull collateral in case of default.

·         Rights to acquire information about the firm’s financial situation, etc.

·         The right to sue managers for breach of duty.

·         Priority covenants.

·         Covenants requiring the firm to keep a specified stock of assets above debt.

Rent rights

 

·         The right to receive rents and amortization in accordance with the terms of the debt contract.

·         Easy transfer of debt

Human capital: Always people

Control rights

 

·         Slavery is forbidden in all modern societies. That is, people control their own human capital such as knowledge about doing things. Among other things this implies that the employee has the right to quit the employment contract. In a few cases, however, this is associated with some kind of compensation for premature contract termination, e.g. football players, fighter pilots, and pop stars.

·         The right to ‘safe’ working environment.

·         Human rights such as no racial, sexual or religious discrimination.

·         Normally the employee has no rights to the product of the work that he/she produces.

Rent rights

 

·         No liability. The firm is usual liable although some jobs such as directors and managers are associated with a legal duty of loyalty.

·         Fixed or performance related rents.

Other capital: E.g. leases or licenses

Control rights

 

·         The right to pull the capital in case of missing payments.

·         The right to pull the capital at the time of contract termination.

Rent rights

 

·         The right to receive rents in accordance with the terms of the lease license.

Copyright 1997-2017, ViamInvest. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Legal notice.