The terms ‘shareholder’ and ‘director’ are sometimes used interchangeably but the two roles are actually pretty different, even though it’s possible for the same person to be both. A private limited company needs at least one shareholder and one director, so we’ll take you through the various roles and responsibilities of each.
What is the difference between a shareholder and a director?
In short: shareholders own the business while directors are responsible for running it.
Shareholders (also sometimes referred to as ‘members’) are the owners of the business. They literally hold shares in the company. As owners they usually have some sort of say in the long-term direction of the business, but don’t tend to be involved in the day-to-day running of it.
This tends to be down to the directors who, broadly speaking, adopt a more managerial role in the company’s daily operations. Directors, sometimes referred to as ‘officers’, are there to steer the business and make important, board-level decisions on the company’s behalf. They’re normally appointed by the company shareholders (or they are the shareholders).
What does a shareholder do?
If a company only has one shareholder, that shareholder will own the entire company. In a company with multiple shareholders, they each own a percentage (a share) of the company according to how many and what type of shares they own.
As well as ownership of the company, shares also indicate what rights they’re entitled to. For instance, they might be eligible to receive dividends from the company profits, or to vote on important business decisions.
As we mentioned earlier, shareholders aren’t generally involved in the day-to-day running of a company. Instead, they tend to vote or ‘make resolutions’ on things like:
- Changes to the company name and/or structure
- Investment opportunities
- The appointment and/or removal of directors
- The transfer of shares
- Changes regarding the nature of the business
- Amending the articles of association
- The approval (or disapproval) of directors’ loans
- Significant decisions about how the company is run
- Deciding the level of authority which company directors have
What does a director do?
The duties of a company director typically include (but aren’t always exclusive to):
- Management of daily operations
- Keeping thorough minutes of board meetings
- Issuing dividends to shareholders and keeping a record of these payments
- Recruitment
- Payroll (where an accountant or third party isn’t responsible)
- Registering the company for Corporation Tax and paying necessary taxes to HMRC
- Preparing and submitting Company Tax Returns
- Producing annual accounts
- Submitting confirmation statements
- Health and Safety requirements
- Making sure licenses, accreditations and certifications are up to date
- Liaising with auditors and accountants
Can you be a shareholder and a director at the same time?
Yes, you can be a shareholder and a director simultaneously, which can be useful if you’re starting a limited company by yourself! Some larger companies might occasionally decide to make a point in their articles of association forbidding it, but it’s not common.
The articles of association are rules drawn up collaboratively between the shareholders, guarantors, directors, and the company secretary, setting out how the company should be run. They might also decide to limit the number of shareholders and directors the company has.
Is it better to be a shareholder or a director of a company?
This partly depends on what sort of role you want or need to play in the company. Lots of people prefer to be both because it means they can:
- Set up a limited company without anyone else
- Pay themselves is a tax efficient way through a combination of a salary (as a director), and dividends (as a shareholder)
- Control the business as a director whilst also having the ability to vote on long-term decisions
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