Explanation

The owners of the company may invite the outsiders to invest in the company. This distributes the ownership between the two. There are certain aspects where the owners and the outside investors differ in opinion.
 
The inside owner, the manager, uses the corporate resources for issuing non-pecuniary perquisites such as club memberships, holiday packages and child care facilities for their own benefit. This was fine when they were the sole owner. However, the outside investors may object to these luxurious perks because they share the cost of the same. Moreover, such high costs affect the profitability of the corporation, which is not acceptable by the outside owners.
 
Consider a project that provides a decent payoff but has a high cost. The inside owners may agree with the investment proposal because the high cost will be shared by the outside owners. However, if the share of the higher cost is affecting the desired income of the outside investors, they will not favour such an investment.

Verified Answer

Agency conflicts between the inside owners and the outsiders occur due the expensive perks that the owners may drive at the cost of outside shareholders. It may also occur for an acceptance (or non acceptance) of a high cost project.