DIRECTOR VS SHAREHOLDER

 

When you register a limited liability company, you will have to tell the Corporate Affairs Commission (CAC) who you want to use as a director(s) and Shareholder (s).

 

I find that a lot of business owners don’t know the difference and use them interchangeably. They are not interchangeable.

 

Even though you might use the same people for both in your private company, they are not the same.

 

Even though you assign the same roles to them, they have separate roles and CAC expects different things from both groups of people.

 

Previously,  you needed at least 2 people to set up a private company. But that has changed now. 

 

You can now register a limited liability company with just one shareholder. 

 

This has implications for your business model but that is not the essence of this. 

 

A company and all it has and owns is divided into shares. Those who hold those shares own that company. Those are the people called the shareholders.

 

They are the ones who enjoy the benefits of the profits and carry the burden of the liabilities of the company.

 

They own the company.

 

The directors are the ones in charge of running the company and ensuring that the shareholders always make a profit. 

 

The shareholders can appoint and remove directors. It is a part of what they do when they meet. 

 

But the directors cannot remove the shareholders. Or can an appointee remove an owner?

 

The shareholders meet in annual General meetings and their agreements are implemented with resolutions of the Annual General Meeting. 

 

The Directors meet at Board meetings and their decisions are implemented with Board Resolutions.

 

The directors meet more often than the shareholders because they control the actual day-to-day activities of the business.

 

When the company is in default of its obligations. Say annual returns, and the CAC will penalize both the directors and shareholders.

 

The decision to start a company or end it, which is called winding up, is controlled by the shareholders.

 

But the decisions of business growth, appointing contractors, limits on all financial matters and so on rests on the directors.

 

In the case of a criminal charge such as a police case or financial crime case against the company, the directors of the company will be charged personally and it will not be seen as merely a company issue. 

 

A person can serve as both director and a shareholder of a company. And their position as shareholders will not be affected even if they stop being directors.

 

Even if they are forced to resign, they cannot be forced to transfer their shares. 

 

The shareholders share profits when there are profits and losses when there are losses. 

 

The directors on the other hand only get a sitting allowance for their meetings and other monies they spend on behalf of the Company that they can prove.

 

Only the class of directors called Executive directors, who are involved in the running of the business on a day-to-day basis earn a salary from the business. These ones are staff of the company and resume there on a daily basis.

 

The functions of directors and shareholders don’t overlap. Provisions can be made for a shareholder to be a director. But ordinarily, the Board of Directors reports to the shareholders in General Meeting.

 

Be intentional about how you set up and structure your business. 

 

Remember that your small business is our big focus.