What is the difference between control rights and cash flow rights?

Question

Quizplus · Accepted Answer

Control rights refer to the ability to influence the decisions of a firm, while cash flow rights refer to the ability to receive a portion of the cash flows generated by the firm. In some cases, large investors may be able to derive additional benefits from their control rights, such as access to privileged information or the ability to use the firm's resources for personal gain. Therefore, control rights can exceed cash flow rights in certain situations. Option A is incorrect because pro-rata cash flows do not necessarily imply that control rights and cash flow rights are the same thing. Option C is incorrect because investors may also seek other benefits aside from cash, such as control over the firm's strategic direction. Option D is incorrect because there is a difference between control rights and cash flow rights.

What Is the Difference Between Control Rights and Cash Flow