Startup Guide: Shareholders vs Directors 1 year ago

Even though many people confuse the two or believe they refer to the same thing, a shareholder and a director have very different functions in a corporation.

 

Shareholders, commonly referred to as "stockholders" own the company by owning its shares. 

 

On the other hand, directors are in charge of managing the company. 

 

Note that not all shareholders become a director. Every year, shareholders elect the members of the board of directors at the annual stockholders meeting.

 

 

Directors

Shareholders

Who 

A natural person and must own at least one share. Also, has never been convicted of a crime involving a sentence of more than six (6) years in jail.

A natural person or corporation must own at least one share. 

Age Requirement

Must be at least 18 years of age.

There is no age requirement.. 

Roles

In charge of managing business operations and making business and financial decisions on behalf of the company

Owner of the corporation and provide financial support in the form of capital in exchange of dividends that may be declared. Also, they do not get involved in the day-to-day activities of the company

Appointment

Directors are elected by shareholders to manage the corporation in their best interests, and is done before filing the Articles of Incorporation

Appointed by purchasing shares and by meeting the requirements of Shareholder Agreement. The number of shares they own determines their level of ownership and control.

Removal

A director may be removed and disqualified if found incompetent by the shareholders, other directors, or by vote at a shareholders' meeting.

Can be removed by voluntarily giving up or selling their shares.

Income

Salary – Shareholders determine their compensation which can be in the form of per diems. 

  • Capital growth – Value of the shares increases between the time you buy and sell them

  • Dividends – Distributed portion of company profit

Power

Vote and decide all corporate acts. 

Vote for members of a company's board of directors. 

Liability

Board members are generally not held personally liable. However, there are some circumstances where the corporation and its directors could both be held responsible.

Shareholders have limited liability, which prevents them from being held accountable for the company's debt–the only genuine financial risk is the possible collapse in share value, which would result in the shareholder losing their investment.

 

The number of directors is similarly limited to fifteen (15). However, a One Person Corporation (OPC) may only have a single director and one stockholder.

 

Even though it may seem that shareholders hold more power since they elect the directors, note that, in reality, directors have a responsibility to the company itself and not to the company's shareholders. It is still imperative for both to work together and prevent disputes that can lead to the company's downfall. 

 

Having a well-written shareholders' agreement can prevent issues by outlining the methods on how to deal with certain issues. 


You may contact a legal expert in drafting a Shareholder's agreement or visit Digest. ph for more business resources.

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