Shareholders vs directors is a very common question raised by people!
If you are planning to invest in a company, or if you choose to start your own business – it is important to understand the thin line between these two roles. Within a limited company, both the directors and shareholders play separate roles. Shareholders are people who own the actual business. On the other hand, directors are people who take the responsibility of running the business. As simple as it sounds, the common comparison, shareholders vs directors is still present.
What makes shareholders and directors interesting would be the fact that both can be the same person. This clearly means a single person can manage the entire limited company while owning and setting it up! This is why many a time you would come across companies that have a single director, and a single shareholder.
Role of a shareholder
First things first, the primary role of the shareholder is to register the company and become subscribers. They are often recognized as members. Once the shareholder subscribes the company, their names will be included in the memorandum of association. This falls in line with the company act, followed in most countries. Next, the MoU declares the shareholder as someone who owns at least a single share in the venture. The share is nothing but a small piece of the business. And, any loss or profit incurred by the share will be borne by its member.
What do shareholders actually do?
The activity performed by shareholders is rather interesting and lucrative. They are meant to invest funds in the business. This works by purchasing and selling shares of the company. Most of the time, the part-owned by the shareholder is expressed in the form of a percentage. Any decision that involves this portion of the share will be done by the shareholder.
Meanwhile, the shareholder is also responsible for appointing directors, firing employees (including the director), defining the role of directors, and changing the actual implementation (or nature) of the business.
Who is a director?
The directors are appointed by the company’s shareholders. It is the duty of the director to run the business, in accordance with the protocols ascertained by the shareholder. The director should be above 18 years of age, and they must not have any criminal records.
Also Read: Top five stakeholder analysis techniques
What does a director do?
Common tasks performed by the director are:
- Registering the company for VAT and corporate tax
- Preparing tax returns and annual statements
- Paying corporate taxes
- Handling employees
- Taking care of employees
- Ensuring that the company meets all rules and regulations of the country’s business laws. This includes the process of maintaining certifications, licensures, and permits. And, this role sharply answers the comparison of shareholders vs directors.