Posted by : Amanda Stein Thursday, November 29, 2012




Management of financial and legal risks in private business is a hot topic especially in the event of the topical losses of some multinational companies which led to their eventual liquidation. However, emerging markets, rapid changes in business condition, restructuring of companies to muddle through the ever increasing competition, increase in cross border transactions, new product development along with complexity of transactions has exposed private businesses to latest risk magnitude.

In all businesses, Risk is intrinsic. Therefore, every organization must manage such risks according to the nature of operation as well as its size because no organization can survive in the long run without it.
Basically, risk has two components which are exposure and uncertainty. There is no risk if the two components are not involved. Facilitating transactions and making products available is a crucial building block for the development of both the private and public businesses. Through holistic method to management of financial and legal risks, any private business will be able to have a high level of awareness, professionally manage, uniformly assess and suitably control all its risks.

Management of financial and legal risks is a key for any private business to grow and remain in the market for a long time while risk management is basically the management style on managing the risks. Hence, it is essential for Prudential Regulations to be replaced with Risk management guidelines that will be adopted appropriately by companies, according to the complexity and size of operations in a particular organization.

Financial risk such as credit, market and operational uncertainties management can be implemented in diverse ways depending on the operations and structure of an organization. The different layers of an organization at which risk is identified and managed was critically defined by the risk management structure even though, there are different levels at which risk can be managed.

Nevertheless, it is important to approach financial risks in a professional manner to yield a positive result due to the fact that interest rate volatility, falsified data in company’s financial reports, market swings, loan defaults and fraud have not only tarnished the reputations of companies, but also led to serious financial losses in the past few years. Therefore, monitoring and management of all types of financial and qualitative risks is becoming increasingly important.

Direct or indirect expropriation of property or assets is the most feared and intrusive form of legal risk in a private business. This usually happens when a government confiscates property for its own use or allotment to private investors. Oil and other mineral wealth expropriation by autocrats are good examples of direct expropriation. Indirect expropriation on the other hand can occur little by little as property rights of foreign investors are windswept in many ways.

Lack of adequate legal remedies and protections is another major risk in private business. There might not be a clear legal authority with the jurisdiction to correct any injustice associated with expropriation in many cases or for the authority to lack the capability to originate or enforce an opposite remedy. All these legal risks can be managed in a private business by complying with government regulations and guidelines.

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