Guide to Company Shareholders

What do Company Shareholders do? Firstly we need to look at what shareholder actually are. A shareholder is someone that owns at least one single share of a company's stock. In other words, shareholders are the people that own a company. Shareholders can also be known as stockholders or members. They invest their money into the company by buying shares, and have the potential to profit from the company if business goes well.

It is not just individual people that can become shareholders. Other companies and institutions can also hold company shares too, and again these shareholders can make a profit if the company does well. However, all shareholders have the potential to lose out if the company does poorly, or has to wind up operations and cease trading.

Being a shareholder in a company means you will not be personally liable for the company's debts if anything should go wrong. This is very different to being a sole proprietor or part of a regular partnership where you would be liable for the company's debts and answerable to creditors, putting your personal wealth at risk.Do shareholders have a role in the company?Shareholders tend not to have any say or influence in the day to day running of a company. That responsibility falls to the board of directors and the internal management structure of the company. Some shareholders are glad about this, especially if they are only interested in seeing a return on their investment rather than having any direct involvement in the company. When the company performs well and share prices go up, shareholders can trade their shares on the stock exchange and sell them for a profit. This is what makes company shares a highly liquid investment.

The corporation's charter will spell out exactly what rights a stockholder has. The most common rights are the ability to inspect the company records and books, the right to receive a portion of any declared dividends, and if the company has to cease trading and goes into liquidation, they have a right to a share of the proceeds once all the creditors and preferred stockholders have been paid.

Shareholders are entitled to attend the company's AGM to hear about the company’s performance, and can vote on who will sit on the board of directors. If a shareholder cannot be present at the meeting, they can listen to the meeting via conference call and vote by proxy. They can also vote themselves onto the board of directors.

Shareholders can also be known as members, and can become a shareholder by agreeing to take the minimum of one share in the company. The shareholders are the owners of private companies limited by shares, and the number of shares held by each individual represents how much of that business they own. For example, a majority shareholder will have more decision making power and profit entitlement than those holding fewer shares.

The typical shareholder role involves investing in a business with the hope of receiving a portion of available profits in relation to their share holdings. If things go wrong, then a shareholder will contribute to the company debts up to the limit of their liability. This usually means losing the money they invested in buying the company shares.

What responsibilities do shareholders have?

A shareholder can vote on who sits on the board of directors, as well as appointing new directors, removing old ones and deciding on what powers are granted to the directors. They may be responsible for setting directors salaries, and authorising dividend structures. They may also have a say over the transfer of company shares, and setting the rights attached to the shares.
After a company formation has taken place, a shareholder taking up shares is known as either a shareholder, stakeholder, member, or simply as an owner or part-owner of the company. This is very different to being a subscriber. A subscriber is someone who was the first member of the private limited company at the time of its formation. This means that the subscriber will have added their name to the memorandum of association, and by doing so, they agreed to become part of the company. This means that if the original subscribers leaves the company, retires or even dies, their name will stay on the memorandum.

Is there a difference between a shareholder and a guarantor?

As shareholders own the company, they are limited by their shares. Guarantors on the other hand are company owners limited by guarantee. Shareholders will receive a percentage of profits made by the company based on the number and value of the shares being held. However, companies that are limited by guarantee do not have shares or shareholders.

Companies that are limited by guarantee are normally set up as non-profit organisations, such as sports clubs, community groups or societies, so guarantors do not take any profits that may be generated for themselves. Any profits made by these companies are usually invested back into the organisation to improve their facilities or equipment.

Where shareholders will be liable to contributing towards company debts up to the value of their shares, guarantors would have to pay an agreed amount of money towards any debt. The amount they pay would have been fixed on agreement, and their personal finances will not be affected

Can you be a shareholder and a company director?

In simple terms, yes! The roles of a shareholder and director are very different. The shareholder is the owner of the company that provides financial security for the company, has control over how the directors manage the company, and also receives a percentage of any profits generated by the company.

Company directors are appointed to the board specifically to manage all the day-to-day operations of the business, and control the finances. This is done for the benefit of the company as a whole as well as the shareholders. This does not mean that a shareholder cannot become a company director, or a directors cannot become a shareholder! The same person can have both roles.

For example, you can own and manage a company by yourself if you are the sole member and director. There can also be more than one owner and director, so if you set up a family business with your siblings and/or cousins, you can all be owners and directors. There is no legal limit to the number a company can have. The only limitations are that a director should be 16 years old or over, they cannot be a disqualified director, or an un-discharged bankrupt.

You only need one shareholder to register a private company limited in the UK, so you can start off by forming your company by yourself, and then add an unlimited number of owners as you go along after incorporation. Anyone joining your company as a member after incorporation will only need to submit their full name to Companies House, no contact address is needed, but it is the responsibility of the company directors to include this information on the statutory register of members. This must be kept at the registered office address for the company. The register must be available for inspection by any member of the public, so it must be kept up-to-date by law.
Depending on the size of a company, you could have just one director, or you could have several. In most cases within an established company there will be a board of directors who are primarily responsible for:

Setting up company policy, outlining goals and objectives, and then monitoring progress towards meeting these goals
Appointing senior staff, line management and project managers
Being accountable to company shareholders
The managing director (MD) or chief executive officer (CEO) is the person responsible for the overall performance of the company. They report directly to the chair or the board of directors.

Company Registration

When you officially register your company, the first company directors are appointed at the same time. The person or persons you nominate as directors are named in form IN01 and will then be deemed to have been appointed as your company's first directors. For example, when your register your company with Your Company Formations and name your company director or directors, each new director will be asked to provide their full name, address, date of birth, nationality, country of residence, former names and business occupation. This is standard information to be included in the relevant form which the director will be required to sign to signify consent to act as a director.

You can make subsequent appointments through submission of form AP01, and new directors coming onboard will be governed by the company’s articles of association. Normally the company's articles will outline the board of directors responsibilities to hire staff or to appoint additional directors up to the maximum number specified by the articles.

A director can file a service address with Companies House as well as his or her home address. It will be the service address that appears on the public record, and personal addresses will be kept private.

A company director must also give general notice of any interests in any contracts held that involve the company. Directors of quoted PLCs are required to state any declaration of interest in the company’s shares under the Disclosure and Transparency Rules.

As a rule, new directors are given a copy of the company's memorandum and articles of association, and details of the business and affairs of the company, including board meeting minutes, and statutory report and accounts covering the past two years.

What powers do company directors have?

Generally speaking, directors responsibilities cover the management of your company, and are able to exercise all the powers within the company. Their authority may be limited by the constraints of the Companies Act 2006, and also by the articles of association. As an example, a director may not be able to authorise any borrowing or finance on behalf of the company without the agreed consent of the other board members. Rule such as these are usually written into articles of association.
Company directors normally act as a collective with other board members to discuss and agree issues and concerns. This does not mean that a single company director is completely powerless without the rest of the team. The articles of association may allow the board of directors to delegate powers to individual company directors where appropriate or necessary, for example sending just one board member to represent the company at regular meeting to deliver decisions, or to negotiate deals.

What sort of duties do company directors perform?

There are statutory duties that directors need to perform in their capacity as company directors. Ultimately, the directors are responsible for ensuring that the company complies with statutory controls they have to comply with in the eyes of the law.

According to the rules set out in The Companies Act 2006, there are certain common law and equitable duties that new directors have to follow. The Act sets out seven general duties of directors which are:-

to act within powers in accordance with the company’s constitution and to use those powers only for the purposes for which they were conferred
to promote the success of the company for the benefit of its members
to exercise independent judgement
to exercise reasonable care, skill and diligence
to avoid conflicts of interest
not to accept benefits from third parties
to declare an interest in a proposed transaction or arrangement

One of the main statutory responsibilities that company directors must adhere to is the preparation of the company accounts and the report of the directors given to shareholders, as well as the subsequent filing of the accounts and directors report with the Registrar of Companies at Companies House. The directors have to ensure that the company maintains full and accurate accounting records.

If the company is found to have failed in carrying out its statutory duties, then as a result the company directors may be liable to penalties. However, the board may have a defence if they believed that the duties were given to a competent person to complete, but were somehow mislead.

The liabilities that directors may incur for their acts or omissions in directing the company could result in personal liability, both civil and criminal. If found liable, then according to the Company Directors’ Disqualification Act 1986, a person could be disqualified from acting as a director of a company for a period of between two and fifteen years.

This article lists only a few of the main duties, responsibilities and liabilities of a company director. If you are in need of more information about the role of a company director, or need further help and guidance about the formation of your company then feel free to speak to one of our experienced team members.

Your Company Formations provides professional customer support to all clients before, during and after the registration of your company. We can assist you at any point, and our friendly team are here to offer you the support you need via the telephone or email as and when required. We also provide after sales account assistance, so any questions you may have after the company has been incorporated will be answered quickly and efficiency.