 Any form of business organization, whether it is a sole proprietorship firm, or a partnership firm, or a corporate firm of organization. All these forms of organizations are not free from conflicts of interest. Conflict of interest in any form is inherent in all these organizations. We know that the prime objective of setting up any business organization is to maximize the shareholder's wealth. But in doing so, a business organization has to take many risks. These risks may be related to market, finance, production, operations, regulations, and many others. A strong corporate governance system is highly desirable in order to handle these business risks. How much a firm is able enough to obtain capital and control risk is dependent upon the quality of the corporate governance system prevailed in this organization. We will see that the conflict of interest is applicable to all three forms of business organizations. Let's talk about sole proprietorship, a one-man ownership business organization in which very little amount of legal formalities is required to set up the organization. Across the globe, many forms of business organizations belong to this class of ownership structure. We see that sole proprietorship has relatively smaller market capitalization. There is a drawback to such type of organization that the business growth is hindered by the smallest operating scale, limited resources to the capital, unlimited liability, limited life or even unsuitable life, insufficient or even no support at all by the government. Non-transfer owner of ownership interest in this class of business organization, managers and owner are the same entity. As the creditors and the suppliers, they are major partner of corporate governance risk because the creditors hold direct business relations with the firm and much more closed business relations with the owner of the firm. Therefore, these creditors are able to get the desired information needed for evaluating business risk of the sole organization. Also, these creditors are able to monitor continuously the riskiness of the business. Due to this, the creditors are able to control their own exposure to the risk. So, we can say that in sole proprietorship form of business organization, the conflict of interest between the manager who is the owner of the business and the creditors and the other stakeholders is at the lowest level. The second form of business organization is the partnership firm. In a partnership firm, many people pool their capital to run the affairs of the firm. They share managerial skills jointly. They share business risks of many types. They reap the benefits of economies of scale. There is an important instrument that binds all the partners altogether and that instrument is generally known as a partnership contract. A partnership contract specifies the rights, responsibilities, obligations and liabilities of the partners involved in the partnership firm. This is the instrument that minimizes the conflict of interest among the partners. Conflict of interest outside the firm is much similar to the conflict of interest related to the sole proprietorship. So, in a partnership firm, the conflict of interest is dealt in a much likewise as done in the case of sole proprietorship firm. The third form of business organization is a joint stock company or a corporation. In corporation, these are lesser in number but significantly greater in volume and impact in the society. A corporation is a legal entity that has rights as enjoyed by a natural person. These corporate firms are legally able to join into contracts. There is a concept of separation of ownership from the management and this separation creates an agency relationship. This means the officers of the corporate firm can enter into any contract on behalf of the business. There are certain advantages attached to a corporate firm. Those are not available for a joint sole proprietorship or a partnership firm. Among those advantages, the significant advantage is that the corporate firm can issue debt and equity and many other financial instruments. And many of the equity and debt instruments are transferable. These corporations enjoy unlimited life with the limited liability. Due to huge size, these corporations have much easier access to the capital in the local market and even in the financial global markets. Separation of ownership is rare from the management. To control the affairs of the state of a corporate firm, its shareholders appoint business experts from the market who hold, operate and regulate the business assets of the firm in the best interest of the shareholders. But this corporate firm of organization is also not free from certain disadvantages. Like, as we know that there are larger number of shareholders in a company. So, due to the involvement of public at a large, a corporation is heavily subject to higher amount of regulations. Also, the operations of a corporation are so complex that quantum of documentation is required to regulate its operations. And this higher regulations and heavy documentation makes the organizational operations costly to the owners. Further, it is impossible for the shareholders to monitor the firm's operations. Because the shareholders are dispersed distantly. Only a proportional and a smaller stake in the company is held by an individual shareholders. Due to these shareholders are unable to develop a sense of feeling for ownership interest in the company. Also, the process of winding up of any corporate firm of organization is very much costly and it is not an easy task. In a corporate firm of organization, there is a concept of agency relationship. We know that individual shareholders are unable to take part in the affairs of the management of the company. Therefore, they appoint professional managers who are responsible to regulate and deploy the assets of the business in the best interest of the shareholders. And this relationship creates an agency relationship in the organization in which shareholders become principal of the managers and managers as agent for their principles. Now, in many cases, managers may not work well for the shareholders because sometimes managers develop their own vested interest. So, instead of utilizing the business assets for the shareholders of the corporate firm, the managers try to use these business assets for their own interest. And this creates a serious conflict of interest due to this agency problem arises. Now, shareholders are forced to incur agency cost in terms of two elements. They are forced to pay heavy perks to the managers so that managers can well work for the shareholders. In order to monitor the performance of the managers, shareholders are forced to incur monitoring cost which is the audit cost and debt cost has to be borne by the shareholders. So, we can say that the relationship between shareholders and the managers created agency relationship. When there is a conflict of interest, this agency relationship creates an agency problem for the shareholders. And in order to cater this agency problem, shareholders have to incur agency cost.