CORPORATE GOVERNANCE IN START- UP COMPANIES

WHAT IS CORPORATE GOVERNANCE?

Corporate governance is the legal and regulatory measures taken to ensure the protection of shareholders’ interests in a company and ensure the proper direction and control of the company in line with the said laws and regulations.

This definition was derived from concerns relating to the separation of ownership and control of companies, which is akin to the agency relationship between a principal (investors) and an agent (management).  The widespread awareness of corporate governance is now necessary to ensure that a company’s management does not take actions that are unfavorable to shareholders or investors.

Corporate governance is based on 4 basic principles, namely:

• transparency;
• fairness;
• accountability and
• corporate responsibility.

These principles must be observed from the creation of the startup and must accompany the development of the company’s governance.

WHY CORPORATE GOVERNANCE IS NEEDED FOR A START- UP COMPANY

• Management of the welfare of both investors and directors’ Corporate governance ensures that directors are put to task when it comes to risk management, management of internal controls in the company, mitigating insider trading and curbing stealing from the company by paying inflated prices, among others.
• Mitigating growth difficulties in a startup. Corporate governance mechanisms are put in place to deal with strategic issues that impede the growth of the startup.
• Raising capital from investors. Proper corporate governance mechanisms inspire confidence in the investors. The corporate governance processes become more sophisticated as the company grows.
• With good corporate governance, a startup can reach a more advanced stage of development. The company has the capacity to scale, grow and generate more jobs. Startups capable of overcoming these first obstacles, with a scalable, innovative and fast-growing business model, become scale-ups. The company structure proceeds to improve and in turn, it positively impacts the company’s growth.

CONCLUSION

Protecting shareholders’ interests is crucial in the success of any startup. Entrepreneurs can scale the heights of success in their startups by simply incorporating good corporate governance mechanisms in their operations. Further, proper corporate governance mechanisms guide investors on the essence of good corporate governance mechanisms while investing in startups.

Netsheria International is happy to work with you in assisting you to review your corporate governance structures and processes for your startup to ensure compliance with the existing legal and regulatory requirements. Contact us at law@netsheria.com or call us on 0741296087 for any inquiries and support on this matter.

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