Director vs Shareholder and the Types of Directors

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Many people get confused about the distinction between director vs shareholder. Both have different types of control over their companies, but in very different ways. These differences are important to understand.

Director vs Shareholder

A shareholder owns (or holds) shares issued by a company. Their name is also entered in the company’s securities register. They may have a hand in running the company at specific meetings, but they cannot do this generally or every day. For example, public companies have annual general meetings in which shareholders can vote on certain matters.

A director is defined in the Companies Act as a member of the Board of the company. The Board manages the day to day business activities of the company. Directors must run the company according to the standards and obligations set out in section 76 and the common law. The standards in section 76 require better transparency, corporate governance and accountability than the common law does. Directors can also be held liable for certain loss, damages or costs under section 77.

A director can also include certain persons who are not members of the Board of the company.

Other types of directors

According to the Act, non-Board member directors can include:

  • an alternate director
  • a prescribed officers (irrespective of their title or function they perform)
  • a member of a committee of the Board (regardless of whether or not the person is also a member of the Board)
  • a related person

Regulation 38 describes a “prescribed officer” as someone who:

  • exercises general executive control over the management of the whole, or a large part, of the business and activities of the company; or
  • often participates to a material degree in the exercise of general effective control over, and management of the whole, or a large part, of the business and activities of the company

Steps to take

You should correctly appoint directors and manage the relationship between shareholders.

By | 2017-03-30T13:21:45+00:00 February 15th, 2016|Categories: Company Law|