The two main faces of a company comprise shareholders and directors. They both run companies in different aspects as Shareholders and Directors. One uses his wealth and one uses his brain.  Two of them fall under the category of promoter means who generated the idea of business. In this piece of writing, we will discuss their roles and responsibilities separately as Shareholders and Directors.

Shareholders vs Directors

The primary difference between Shareholders and Directors is that Shareholders are the owners of the company and Directors are the employees of the company who are responsible for the day-to-day operations of the company. Shareholders do not take part in routine activities of the company. Directors are responsible for routine tasks and are the management of the company. 

Shareholders are the founders of the company who promoted the idea of the business. They are the primary funders who took the first step towards the formation of the company. They are entitled to receive the dividend on their shares. They are the supreme authority for important decisions in the company. 

Directors are bound to perform in the best interest of the company. They are less powerful in comparison to the shareholders are members of the company and have the power to remove a director by the special resolution. In a company maximum number of directors can be up to 15 only either in the case of a public company or a private limited company. 

Comparison Table Between Shareholders and Directors

Parameters of ComparisonShareholdersDirectors
OwnershipShareholders are the owner of the company.Directors if also holding shares of the company then considered owners. 
StatusShareholders may or may not be Individual people. Directors are always natural people, not any other entity. 
Voting RightsShareholders enjoy voting rights in a company only in General Meetings held as per the Companies Act, 2013.Directors enjoy voting rights in Board Meeting or any other committee meeting as per the Companies Act, 2013
MeetingsThe Meeting of shareholders in a company is called AGM or EGM. The Meeting of Directors is called Board Meeting or Committee Meeting. 
AppointmentFirst Shareholders be part of MOA and AOA subscribers. First Directors are the part of AOA of the company. 

Who are Shareholders?

The term Shares refers to the real owners who founded the base of the companies. they have superior powers to the directors of the company as per the Indian Companies Act, 2013. Any amendment in the charter of the company or MOA cannot be finalized without the prior approval of the shareholders of the company.

Every major decision of the company is in the hands of the shareholders of the company. Meeting exclusively convened for the shareholders are General Meetings and there are two types of General Meeting one is Annual General Meeting and another is Extraordinary General Meeting. Every company is bound to convene Annual General Meeting annually to consider and approve the financial statements of the company whereas EGM or Extraordinary General Meeting is held in only special cases. 

A Shareholder may or may not be a natural person, which means a company or HUF or any firm can also acquire a shareholding in a company. One share can be purchased by  2 people jointly. The ownership of a share can be transferred between two people. Shareholders have the voting rights as assigned under the Articles of the company as per the Indian Companies Act, 2013. There are shareholders in two categories equity and preference. 

Who are the Directors?

The term Directors refer to the management of the company. They are the pillars who keep the company as a going concern. They are responsible for the everyday know-how and operations of the company. They put their efforts to make the company profit-making and further return the money to shareholders in the form of Dividends. 

Compliance reporting, Financial responsibility are a few duties performed by the directors of the company. In India Companies Act, 2013 there are various types of directors in a company namely executive, independent, additional, alternate, Non-executive, Managing, and small shareholder director. 

A meeting held by directors of the company is called a Board Meeting and all the directors of the company are collectively called Board.  As per the Companies Act, 2013 companies having an annual turnover of more than 300 crores are required to appoint a woman director on board also for the companies having stocks listed on stock exchanges. 

Directors in India are considered officers in default due to their decision-making authority. A single company can appoint only 15 directors maximum. but the minimum number of directors in a company is different in various kinds of companies like 1 director in OPC, 2 directors in case of a private limited company, and 3 directors in a public company. 

More Differences Between Shareholders and Directors 

  1. Roles: Shareholders are the owners or founders of the company whereas the Directors are the managers of the company. 
  1. Minimum Requirement: In a public company there should be a minimum of 7 Shareholders, on the other side there must be a minimum of 3 directors in a public company.
  1. Powers: Shareholders have the power to remove directors in some adverse situations and Directors do not have any powers to remove Shareholders.
  1. Tenure: Shareholders do not have any fixed tenure of holding shares on contrary, Directors have some fixed tenure as per the Indian Companies Act, 2013.
  1. Retirement: In the case of a company, Directors are liable to retire by rotation on the other side Shareholders are not liable to retire by rotation.

Both Shareholders and Directors are Corporate terminologies that carry huge responsibilities for a company. Though Shareholders do not carry any monetary liability apart from their paid-up amount on subscribed capital but directors are bound for their liability as well for any non-compliance in the company.

Both Shareholders and Directors are pillars of the Company. It is the duties and responsibilities which makes makes the roles apart as a Shareholders and Directors.

Conclusion

Directors hold very dignified positions in the company to make it successful. Any single individual who can play both roles in a company is a Shareholders and Directors as well. It is very common in the case of private limited companies that shareholders and directors are the same people.

References

  1. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1741-6248.1999.00361.x
  2. https://link.springer.com/article/10.1007/BF00872102

By csannusharma

Annu Sharma is a qualified Company Secretary as well as a Certified CSR Professional and a Law graduate with rich experience of 4 years in secretarial, corporate legal affairs, management and corporate governance; in different industry sectors. Featured on Tax Guru.In, Compliance Calendar LLP and Blogger.com.