The difference between directors and shareholders

Directors

Directors are known as company officers, can be a natural person (human) or a corporate body. They can also be shareholders. Directors are appointed by the shareholders, they are responsible for managing a company lawfully and ethically in accordance with the Companies Act and the Articles of Association, required to run the business within their powers granted in the articles.

There must always be at least one human director in a company, expected to promote the success of the business with a view to making a profit for the benefit of the company and its shareholders.  Directors receive a salary (and dividend payments where applicable if also a shareholder).

Their rights and powers are determined by the shareholders. Legally responsible for filing true and fair annual accounts, Annual Returns, and Company Tax Returns by the statutory deadlines. Ensuring all required company taxes are paid on time.

They can be removed and disqualified if they are incompetent, display ‘unfit’ conduct or breach their contract in any way. Can be held personally liable and prosecuted if they fail to uphold their legal responsibilities and duties. Normally authorized to issue and transfer shares, but it depends on the powers they are granted in the Articles of Association.

Shareholders

They are known as members. The first shareholders are known as subscribers, can be a natural person or a corporate body. Own some or all of a company through shares. Liability is limited to the nominal value of their shares. If the company gets into debt, they are only responsible for the value of their shares.

Can also be directors if not otherwise prohibited. Receive a portion of the profits in relation to their shareholdings. Not involved with everyday business activities and management, unless they are also directors. Have the power to appoint and remove directors and company secretaries.

Can choose what powers and rights the company directors have. Proportion of ownership depends on the number, value and class of shares held.

 Their voting rights, capital rights and dividend rights depend on the Prescribed Particulars attached to their shares. Make decisions about significant issues such as changing the company name or structure, investment opportunities, issuing shares, appointing an auditor to inspect the accounts, appointing or removing a director, changing a director’s powers, and changing the Articles of Association or Shareholders’ Agreement.

Normally have a right to any surplus capital if the company is wound up (if Articles permit). If a company is owned and managed by a sole director and shareholder, one person alone will have all of these rights and responsibilities. It is important to be aware of these requirements and obligations before committing to limited company formation.

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