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FINANCIAL LITERACY •  26 OCTOBER 2021 • 4 MIN READ

What’s the difference between a company director and a shareholder?

What’s the difference between a company director and a shareholder?

What's a company director?

A director is someone who has been elected or appointed to arrange company affairs. The can be, but aren’t necessarily, a shareholder of the company. Every company is required to have at least one.

A director is obliged to act honestly and in the best interests of the company (and its shareholders), with reasonable care at all times. You can find out more about the role and responsibilities here. The duty of care is not to be taken lightly. An example – if a director allows a company to continue trading while insolvent, a creditor may take legal action against the director, putting personal assets at risk.

What's a shareholder?

A shareholder is someone who has an investment with a company by owning shares. In small-medium businesses, a shareholder may also be an employee, a director, or a shareholder-employee, participating in day-to-day management. In large companies, a shareholder is probably not a director.

Shareholders may receive a ‘shareholder salary’ for working in the company. It can also be considered an allocation of profits. This must be reasonable, based on the work performed, and in line with market conditions.

Shareholders have a right to the profits of the business. These are paid out through dividends, in proportion to the number of shares that they own.

The shareholder(s) appoint the director(s).

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