Shareholders and Directors: Who’s the Boss, and who’s just watching the show?

Directors and Shareholders: the difference explained

Directors and Shareholders have distinct roles and responsibilities in a private company limited by shares in England and Wales. This article provides an explanation on how they differ…

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Directors

Directors are responsible for the day-to-day running of a company. They make key decisions about the company’s operations, management and strategy. They have a legal and fiduciary duty to act in the best interests of the company and its shareholders though and they must exercise their powers for proper purposes, avoid conflicts of interest and act with due care and skill.

A private company limited by shares must have at least one director however its possible for a company to outline a higher minimum of directors. They are usually appointed by the shareholders however depending on the company’s constitution and their articles of association, they may be removed by the shareholders or a majority of the other directors.

Directors are also responsible for ensuring that the company complies with relevant laws and regulations, including filing accounts, paying taxes, and maintaining records. Shareholders do not have the same level of legal responsibilities in terms of governance and management. However, they must comply with any legal obligations related to their shares.

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Shareholders

Shareholders are the owners of the company, holding shares that represent their proportionate interest in the company. Their influence and control over the company generally correlates with the number of shares they own. The number of shares, and rights attached to those shares, will also affect a shareholder’s voting rights, rights to dividends and the capital of the company.

Generally, shareholders are entitled to a portion of the company’s profits, usually in the form of dividends, if declared by the directors. Their entitlement will depend on how many shares held, and the rights attached to them.

Shareholders have the right to vote on certain matters affecting the company but they generally have a more limited role in decision-making though compared to directors. They will make decisions relating to electing directors, approving major transactions (e.g., mergers or acquisitions), and altering the company’s articles of association. Voting rights are typically proportional to the number of shares owned, though specific agreements can alter this.

Shareholders liability is limited to the amount unpaid on their shares. If the company faces financial difficulties, shareholders are not personally liable for the company’s debts beyond what is due on their shares.

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