Shareholder VS Director | Everything You Must Know

Becoming a director or shareholder in a business is accepting responsibility as a key figurehead of that business and its profitability. Though being a director is very different to being a shareholder, many people confuse the two or think they mean the same thing. Therefore, read on to understand the difference between shareholder vs director in terms of the following:

 

• Eligibility
• Appointment
• Rights
• Roles and Responsibilities
• Decision Making Authority
• Liability
• Remuneration or Profit Sharing
• Removal

 

Eligibility

 

Shareholder

 

A shareholder in a company can be an individual, entity, limited liability partnership, firm, society, trust or any other artificial or legal person.

 

Director

 

Only an individual above 18 years of age can be a director in a company.

 

Appointment

 

Shareholder

 

Initial shareholders are the subscribers of AoA & MoA of the company. After that, the shareholders are added by issuing or alloting shares.

 

Director

 

Initially, Directors are appointed by Promoters in the AoA and are subject to approval

 

After that, if you wish to add more directors, you must conduct an EGM (Extraordinary General Meeting). In the EGM, the Board of Directors appoints additional directors after the shareholder’s confirmation.

 

Rights

 

Shareholders

 

Shareholders are entitled to certain rights as owners of a company. 

 

They have the right to vote for directors and on other issues that come up at the annual meeting. 

 

Shareholders also have a say in how much money is paid in dividends. 

 

They may receive shares of stock instead, which they can then sell if they want to cash out their investment.

 

Also, their voting, capital and dividend rights depend on the specified attributes agreed to when setting up their shares. 

 

A shareholder also makes decisions about important issues such as:

 

• Changing the company's name or structure.
• Investment opportunities
• Issuing shares 
• Appointing the auditor to review the company accounts
• Appointing or removing directors from the company
• Changing the powers of the company's director
• Modifying the AoA (Article of Association) and Shareholder Agreement.

 

Director

 

The director of a company is in charge of the company’s management and control. 

 

They have the responsibility to take care of the company’s property, assets and liabilities. 

 

A director has certain rights that are granted by law. 

 

Some of these rights are: -

 

• The right to vote at board meetings 
• The right to be elected to the board 
• The right to be heard at board meetings 
• The right to inspect books and records 
• The right not to have his or her contract terminated without good cause 
• The right of appeal

 

Roles and Responsibilities

 

Shareholder

 

Shareholders are the owners of a company. They have the responsibility to ensure that the company is profitable and sustainable.

 

The following are the roles and responsibilities of a shareholder:

 

• They need to be aware of the company's finances, strategic plans, and policies. 
• They have a responsibility to monitor and oversee how their shares are being used by the directors, which includes approving any major changes, such as mergers or acquisitions.
• They vote on resolutions at shareholders' meetings and can also nominate directors to be elected by other shareholders.

 

Shareholders are not required to work for the company they own shares in, but they can be called upon for advice or assistance if needed.

 

Director

 

A director is the head of a company. 

 

They are responsible for making sure that the company is running smoothly and following its goals.

 

To do this, they need to make sure that they have an idea of what their employees are doing. 

 

They need to know when they need more help or when an employee needs additional training.

 

They also need to be able to delegate tasks and delegate work evenly among their employees so that no one person becomes overloaded with work.

 

It allows them to have a more efficient workflow and limits the risk of burnout in their employees.

 

Decision Making Authority

 

Shareholder

 

Shareholders have decision-making authority in the company and can influence decisions made by the board of directors.

 

They are often required to vote on certain matters that arise in the company. 

 

The shareholders with the most shares have more decision-making power than those with fewer shares.

 

In most cases, major decisions such as mergers and acquisitions are decided by shareholders meeting together and voting on them.

 

Director

 

A director is someone who has the authority to make decisions on behalf of a company. 

 

He or she may be the CEO, founder, president, or another person who has been given the position of power by the company.

 

The decision-making authority of a director in a Company depends on what type of business they are running and how much power they have been given by the board. 

 

The decision-making authority is usually set out explicitly in their contract.

 

Liability

 

Shareholder

 

The shareholders are protected from the debts of the company by the Limited Liability principle. 

 

However, they will remain liable to pay their unpaid share of the subscribed share capital of the company as called for by the board. 

 

Director

 

Directors are personally liable for lapses in compliance with all laws which apply to the company. 

 

The liability of the director is generally a tremendous amount of penalty, but in a few cases, they may be sent to imprisonment after prosecution by the government. 

 

Remuneration or Profit Sharing

 

Shareholder

 

The shareholders are not entitled to any compensation, salary, or wages from the company. Their only interest in the company is the dividend or increase in the value of the share they own in the company. 

 

Director

 

Directors are entitled to remuneration subject to the limits set by section 197 of the companies act and sitting fees.

 

Removal

 

Shareholder

 

The shareholders can transfer their share in the company at their choice, subject to the provisions of the AoA. 

 

However, they cannot be forced to exit the company. 

 

The only exception to this rule is the removal of shareholders as per the orders of the courts or the National Company Law Tribunal (NCLT).

 

Director

 

The directors can hold office only until they are discharging their responsibilities to the satisfaction of the shareholders. 

 

To remove a director, the shareholders can call an EGM. Thus, by a simple majority vote, a director may be removed.