The differences between company directors and shareholders

When incorporating your business for the first time you will get acquainted with the terms, ‘director’ and ‘shareholder’.
Similar as they may seem, these two roles set different responsibilities between the company managers and its owners.
In this guide, we will explain the primary distinctions between the company’s shareholders and its directors.

What is a company director?

Company directors may also be referred to as company officers. They are appointed by the company shareholders to run and manage its affairs.
It is very common that a director is also the main or only shareholder of a limited company.

What is a company shareholder?

Shareholders are the owners of a limited company, which may also be known as ‘members’. Shareholders can be a person, group of people or in some cases, another company.

What are the responsibilities of a company director?

A company director would normally be responsible for:

  • the management and running of the company
  • acting in the interests of the company and promoting it.
  • ensuring all legally required forms are submitted to HMRC and Companies House.

What are the responsibilities of limited company shareholders?

A shareholder would:

  • invest money in a company
  • be liable for company debts up to their limit of liability, meaning the shareholder’s share or ownership part of the company.
  • nominate and grant powers to directors.
  • authorise share allotments.
  • receive profit shares from the company.
  • make decisions in exceptional circumstances.

Who can be appointed as a company director?

Limited company directors are required to be 16 years old or older.
They cannot carry a bankruptcy status or be disqualified from acting as a director.

Who can act as a shareholder?

Anyone can be a shareholder of a limited company. There are no age limitations or other exclusions.
It is quite common for shareholders to act as the company director, simultaneously.

How many company directors can a limited company have?

A limited company can have multiple directors, where all directors are responsible for running the company and all are accountable if the company is not operated legally.

How many company shareholders can a limited company have?

Most limited companies are required to issue at least one share.
It is common for a limited company to be set up with one share unless the company will be owned by numerous shareholders from the start. While there is no upper limit on the number or value of shares a company can have, care must be taken that these should be ‘paid up’, otherwise shareholders will be liable for any debt the company builds up and consequently, cannot pay.

Can a company have different types of shares?

Yes, a company can issue different types of shares. Most limited companies will create ‘Ordinary’ shares initially, which provide equal rights to all shareholders, including voting rights, the issue of dividends and share capital rights.
In cases where there are multiple shareholders, a company can issue different types or classes of shares that all carry separate rights within the company. The company’s articles of association usually state how and when a company can issue multiple classes of shares.

How much are shares worth?

There are usually two valuations of how much a share is worth. The ‘nominal’ value of a share can be set upon the share being issued. In most cases, the ‘nominal’ value is £1.00. The nominal value of a share also sets the limits of liability for each shareholder.
The market value of a share will fluctuate. This is usually the value that is put on a share if it were to be sold at ‘market rate’. This value will fluctuate based upon profitability, market conditions or trading styles of the company.
The difference between the nominal value of a share and its market value is commonly known as the share ‘premium’.

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