Clarifying Roles: Unraveling the Distinction between Directors and Shareholders

Stick in the Mud

There is a difference between directors and shareholders. The two are often confused, particularly in SMEs where directors and shareholders are often the same actors.

Sometimes however, they are not the same actors or at least they were the same until a switch was flicked.

At a high-level, directors are appointed or elected by shareholders to manage a company’s affairs and make decisions on its behalf. Directors are responsible for strategic planning, policy-making, and day-to-day operations, ensuring compliance with laws and regulations, and protecting the company’s assets. They act in the best interests of the company and its shareholders. Tough job.

Shareholders are the owners of the company. They invest capital by purchasing shares in the company and have ownership rights, including the right to vote on significant matters, such as electing directors and approving major transactions. Shareholders generally do not have direct involvement in the day-to-day management of the company. Try backing your SUV in the loading dock of Woolworths and asking for some stock as a shareholder entitlement!

Legal Obligations of Company Directors and Shareholders

Importantly directors have legal obligations and potential liabilities. They must act in good faith, with care and diligence. Directors can be held personally liable for breaches of their duties, including insolvent trading.

Shareholders on the other hand generally have limited liability. Their liability is usually limited to the value of their investment in the company, and they are not personally responsible for the company’s debts or obligations. They can receive dividends, participate in the company’s growth, and may benefit from any increase in the value of their shares.

In most cases directors are also shareholders, but their role as directors is separate from their role of personal shareholdings.

Understand your position.

Understand your rights.

You don’t have as much power as you think you do.

Attempting to resolve disputes by manoeuvring or toggling between directorships and shareholdings could leave you as influential as a stick in mud.