Most people presume that shareholders and directors are the same because of the vital role they play in a company. However, this is incorrect. Although there are some similarities, there are distinct differences everyone should know.
This article explains the differences between directors and shareholders, including clear definitions of their roles within a company.
Who is a Shareholder and a Director?
- Shareholders: Own the company by buying and holding its shares, acting as the company’s financial supporters. Being a shareholder does not automatically give the right to manage the company’s day-to-day operations.
- Directors: Responsible for the day-to-day management of the business and its operations. They oversee the company’s activities and make strategic decisions on behalf of the shareholders.
Differences Between Shareholders and Directors
- Role: Directors manage day-to-day operations and make decisions on behalf of the company, while shareholders are owners with the right to vote on important matters and receive dividends.
- Authority: Directors have the authority to act on behalf of the company; shareholders’ authority is limited to voting on major decisions.
- Liability: Directors can be personally liable if they breach fiduciary duties, while shareholders are generally only liable up to the value of their investment.
- Compensation: Directors may receive a salary or fees; shareholders typically earn dividends or capital gains from shares.
- Representation: Directors represent the company and are accountable to shareholders; shareholders are represented by directors and management.
- Ownership: Shareholders own part of the company through shares; directors do not own the company but oversee its operations.
- Rights: Shareholders have voting rights on major company decisions. Directors have voting rights within board meetings, usually determined by majority.
- Management: Directors are appointed to manage day-to-day operations. Shareholders do not handle daily operations.
- Appointment: Shareholders appoint or remove directors through resolutions passed by a simple majority. Directors cannot appoint shareholders.
- Power: Directors manage the company’s business and exercise the powers necessary to achieve company objectives.
in a tabular comparison
| Feature | Shareholders | Directors |
|---|---|---|
| Role | Owners of the company who vote on important matters and receive dividends. | Manage day-to-day operations and make decisions on behalf of the company. |
| Authority | Limited to voting on major corporate decisions. | Full authority to act and make decisions for the company’s operations. |
| Liability | Only liable up to the value of their investment. | Can be personally liable if they breach fiduciary duties or act negligently. |
| Compensation | Receive dividends or capital gains from shares. | May receive salary or fees for services rendered. |
| Representation | Represented by the company and directors. | Represent the company and are accountable to shareholders. |
| Ownership | Own a portion of the company through shareholdings. | Do not own the company but oversee operations and make strategic decisions. |
| Rights | Voting rights on major company decisions, electing directors, and approving financial statements. | Vote within board meetings; decisions typically carried by majority. |
| Management | Do not manage day-to-day operations. | Responsible for day-to-day management and ensuring company goals are met. |
| Appointment | Appoint or remove directors through resolutions passed by a simple majority. | Cannot appoint shareholders. |
| Power | Influence strategic direction through voting and resolutions. | Exercise all powers necessary for company management and operations. |
Conclusion
Shareholders and directors play different but complementary roles within a company. Both are essential to achieving the company’s strategic objectives, and one role is not more important than the other.
Frequently Asked Questions
Can shareholders tell directors what to do?
While shareholders have significant influence through voting rights and approval of major decisions, they cannot directly instruct directors on day-to-day management. Directors manage company affairs autonomously within the framework set by the shareholders and the company’s Articles of Association.
2. How do shareholders and directors contribute to the success of the company?
Shareholders provide financial investment and oversight, securing the company’s capital and monitoring directors’ performance.
Directors manage daily operations, make strategic decisions, and implement company policies. Together, shareholders and directors ensure smooth functioning and growth of the company.
Do You Need External Company Secretarial Services?
At Tcorporate, our Chartered Company Secretaries handle relations between the board and shareholders. We also assist with corporate filings, company setup, and other secretarial services.
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Disclaimer:
This publication is for general guidance and does not constitute professional advice. For specific legal advice, consult a professional advisor.
Written By:
Victory Nkemjika Okolie, LLB, B.L
Legal Associate, Tcorporate Legal Advisory