Understanding the reasons for corporate business failures and the ways and means of stopping or rectifying such failures, is always of top paramount importance. Corporate business here means any kind of business including companies, SMEs, Startups and entraprenures. Some of the reasons that could cause corporate business failures may include issues that relate to the equity ownership of the corporation, directorship and management of the corporation, structural issuesm lack of experience and know-how … etc.

The equity ownership of business, as a matter of fact and law, takes different ways and forms, such as, family ownership or partnership or equity shareholding or SMEs or the like ownership. Each of the mentioned categories has got, if we could say, it’s pros and cons. Regarding family ownership, we have to mention that, many companies diminish or disappear from the scene after the first or the second generation establishing or starting the business. Failures could occur in family business due to lack of capital, business information shortage, lack of vision, conflict of interest or other reasons. With reference to partnerships, the failure could happen to differences between partners regarding business activities, lack of industry or good market, etc.

The partners may face some financial or logistical problems that affect their role or involvement in the business. Equity shareholding companies are not free from such instances and they face difficulties regarding ownership of the company. This is obvious from the fact that we seldom notice the involvement of most shareholders in the affairs of the company. Many shareholders are completely ignorant about what is happening in their company and this attitude, in certain cases, wasa the cause for failure. In some instances, with reference to SMEs, Startup entraprenures, the owners or the management could be the direct cause for the failure of the business. This happens when they are not exercising or performing their duties properly and there is no body or authority to question them due to the absence of corporate governance rules.

The management of any business activity requires leadership with vision and mission. This vision and mission should be maintained in all cases, being companies or SMEs or the like. Proper management of business includes good planning for present and future operations in a satisfactory method that leads the business to add real and material value for its owners and stakeholders. The law, almost in all places, includes certain specific provisions that should be followed all through the life span of the business. These provisions, will safeguard interests of concerned entites and could help in escaping risks causing failures. The laws include some provisions regarding the required mandatory disclosure by the management of the business to holders and authorities, as a continuous legal requirement that should always be implemented. Disclosure enables required parties to take appropriate steps in the appropriate time.

The are many other legal duties, such as, employing auditors and their role in safeguarding the interests of the business. Auditors are required by law to report in certain cases where there are clear unattended serious violations. Moreover, the competent authorities could intervene at any time and take the required appropriate actions to safeguard the interests of the concerned. We believe that, the legislator gave such legal authority to them so as to be able to take corrective actions to escape, avoid or mitigate corporate business failures. The law includes many ways to help in implementing corporate governance, to help in avoiding corporate failures. However, we believe, owners of each business should take positive actions to improve the affairs of their business and this could lead to positive progress to keep away from failures. All are required to take care, you and others are morally and legally responsible.

Dr. AbdelGadir Warsama Ghalib

LEGAL COUNSEL

Email: awarsama@warsamalc.com