Difference Between Shareholders vs Board of Directors

difference between shareholders and board of directors

Directors and shareholders play two very distinct responsibilities in a firm. The directors run the business, while the shareholders, sometimes known as members, own its shares.
In private firms, the legal distinction between shareholders and directors may be unclear. When two or three individuals form a corporation together, they frequently consider themselves to be “partners” in the enterprise.

They are all shareholders and directors of the company, which is a common way for them to demonstrate that relationship. This is problematic because company law dictates that certain choices must be made by the directors during board meetings and that other decisions must be made by the shareholders through written resolutions or resolutions adopted at public meetings. The directors must make some decisions, but only with the approval of the shareholders, which further complicates things.

The requirements of the Companies Act and/or the articles of organization of the firm determine which meeting has the authority to make a certain decision—the board, the general assembly, or both.

Provisions of the Companies Act

Certain actions, like amending the company’s articles, are limited to shareholder decision-making by the Companies Acts. Many more choices are up to the directors, but they can require the approval of the shareholders through a regular or extraordinary resolution.

Who is a Shareholder in a Company?

Authorities who own a fixed percentage or ratio of equity shares in a firm are known as shareholders. Their ownership, profit-sharing, and decision-making authority inside the organization are determined by this percentage. on addition to investing money, they also have the last word on important choices like selecting directors and determining the makeup of the board of directors. The signatures of a company’s shareholders attest to its most crucial constitutional documents, the Memorandum of Association (MOA) and the Articles of Association (AOA), which remain a part of the documents until the shareholders dissolve the firm.

The shareholders vote on resolutions at the annual meeting to make decisions. Ordinary resolutions need more than 50% of the vote to pass, while exceptional resolutions need more than 75% of the vote to pass. While the majority of shareholder decisions are subject to an ordinary resolution, some important decisions—such as changes to the MOA and AOA, reductions in share capital, removal of the auditor prior to the end of his regular term, and appointment of directors in excess of the 15-person maximum—need to be passed by a special resolution.

This general meeting’s main decisions include:

Resolutions can be passed to reject decisions in addition to being necessary for accepting them. In the event that the agenda items are not completed, the AGM may even be adjourned. It is important to note that all shareholder decisions and resolutions are documented in the minutes of the shareholder meeting. By submitting a copy of the resolution in form MGT-14, shareholders can report resolutions that need the approval of a 3/4th majority of shareholders to ROC. If a specific agenda item comes up in the middle of the year, shareholders have the option to convene an Extraordinary General Meeting (EGM) in order to address it.

Who is a Director in a Company?

The tasks, responsibilities, and liabilities of the board of directors and shareholders with regard to the firm are significantly different, as was previously mentioned. Directors, on the other hand, are in charge of bringing this vision to life through proper management of the company’s affairs and ensuring compliance with various legal and regulatory requirements.

A company’s first director and each one after are chosen by the shareholders, and they serve in that capacity until the shareholders are otherwise satisfied. A resolution requiring the approval of a simple majority of shareholders must be passed in an unusual or extraordinary general meeting, or EGM, in order to remove a director from their post. But the director still needs to do all of his tasks until the last day of his removal, even during the removal procedure.

A company’s directors are primarily responsible for controlling, supervising, and managing the company’s internal affairs. This includes making decisions about the company’s management by passing resolutions during board meetings.

At a board meeting, resolutions are approved by a simple majority that is attained by each director voting. A vote in a meeting is cast by one director, and the majority decides what should be done or implemented.

Directors’ Types

The functions and responsibilities of each director chosen by a firm are not the same. The objective of their appointment determines the differences in their tasks and responsibilities. A few common director types in any Indian firm that has been incorporated are listed below. Below is an explanation of the duties and obligations of the many kinds of directors:

  • Executive Directors: These directors have a hands-on role in both internal and external corporate management. Additionally, they promptly handle the company’s legal and regulatory obligations in order to prevent penalties, fines, late fees, and other repercussions.
  • Non-Executive Directors: These directors abstain from internal business matters and day-to-day operations of the corporation. They are employed by the company to act as a stakeholder representative or in a professional capacity.
  • Independent/Professional Directors: Typically, they are given the responsibility of supporting the Board of Directors in making important choices pertaining to their area of expertise.
  • Nominee Directors: They guarantee the defense of the party they are standing in for.
  • Additional Director: To finish any unheard-of amount of work, new directors are engaged. Their term is limited to the subsequent AGM that takes place following the date of their appointment.

Difference Between Shareholders and Directors

AspectShareholdersDirectors
DefinitionOwners of the company’s shares.Individuals appointed to manage the company.
RoleInvest capital and own a portion of the company.Oversee and make decisions about the company’s management and operations.
ResponsibilityHave a financial interest and voting rights.Responsible for the strategic direction and governance of the company.
Decision-MakingVote on major corporate decisions, such as mergers or changes to the company’s charter.Make daily operational decisions and set company policies.
LiabilityLimited to the amount invested in shares.Can be personally liable for breaches of fiduciary duties or misconduct.
AppointmentAcquired through purchasing shares.Appointed by shareholders or a board of directors.
MeetingsAttend annual general meetings (AGMs) and vote on resolutions.Attend board meetings and make decisions on company operations.
CompensationDo not receive regular compensation from the company.May receive salaries, bonuses, or other compensation for their roles.
DurationCan hold shares indefinitely, subject to sale or transfer.Serve for a specified term, as defined by the company’s bylaws or until resignation.
RightsEntitled to dividends, voting rights, and a share of the company’s assets upon liquidation.possess the ability to make choices and are responsible for the performance and compliance of the business.

Conclusion: Shareholders vs Directors

To sum up, the board of directors and shareholders have different but complimentary duties in a corporation. The owners of the firm are its shareholders, who also supply funding and have the authority to cast votes on important matters impacting the business, such choosing directors and approving important decisions. The board of directors, on the other hand, is in charge of the day-to-day operations and strategic planning of the business. Directors oversee the company’s adherence to legal and regulatory requirements and make operational decisions.

FAQs on Shareholders vs Directors

1. A shareholder or a director, who is more powerful?

Shareholders and directors possess distinct forms of authority. Directors oversee day-to-day operations and strategic choices for the company, while shareholders have a say in big decisions through ownership and voting. Directors control management, while shareholders control ownership, depending on the situation.

2. Is it possible for an Indian shareholder to hold a directorship?

In India, a stakehol2der may indeed hold a directorship. In fact, it’s not uncommon for shareholders to have directorships in private limited companies. People can do both positions as long as they follow the legal and regulatory criteria, according to the Companies Act of 2013.

3. What distinguishes a director from a shareholder in a private limited company?

In a private limited company, directors oversee day-to-day operations and strategic planning, while shareholders own the business and have the opportunity to vote on important decisions. Directors supervise management and make sure the business runs well, while shareholders give funds and have the ability to vote on important issues.

4. What distinguishes a shareholders’ meeting from a board meeting?

Directors debate and decide on company management and strategy during board meetings. At a shareholders’ meeting, important decisions like choosing new directors or accepting the financial accounts are voted on by the attendees. Whereas shareholders’ meetings deal with ownership and governance problems, board meetings concentrate on operational matters.

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