Differences between Shareholders and Directors

October 13, 2022 Finance Talk Valli Sarvani

If you are founding a company, then you may wish to be a director or shareholder of that company. Or sometimes, the founder may wish to have both roles. Before choosing the position, it is essential to know the differences between these two roles.

This is because each role has its own responsibilities and rights. If you fail to comply with the responsibilities of a position while performing in both positions, you may have to face legal consequences. So, know the differences between both positions.

Generally, in most companies, especially in limited companies, the same person plays the role of both a shareholder and director. Though it is not essential, the same person will be a shareholder and a director.

Shareholders fund the company or business by buying shares. Directors manage the operations of the business of the company.

Shareholders own the equity. They are real owners of the company. On the other hand, directors are elected or appointed by the shareholders or other directors of the company to implement the decisions of the company. They act as the representatives of shareholders.

Only individuals can be directors. On the other hand, entities, firms, societies or trusts, in addition to individuals, can be shareholders of a company.

Shareholders engage in the most important decisions of a company, while directors involve in the daily operations of the company.

Shareholders do not receive any payment. But, they are entitled to receive dividends on their shares if the company makes profits. But, directors get paid for their work. The payment is generally decided by the shareholders of the company.

A shareholder must take decisions in good faith. He should make sure that the company is managed smoothly with proper decisions. At the same time, a director must act in good faith while performing his duties. He should avoid misusing his position.

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