While waiting hastily for my metro knowing that I’m already late, just overheard the conversation taking place between a group of men waiting just like me. “To be a director of the company is better than being a shareholder” was a statement on which a few did agree and the rest didn’t. This statement did take my attention towards it because I wanted to invest in the shares of a company but after hearing the statement a question that popped in my mind was isn’t being a shareholder and a director one of the same thing?
Many people have this same question in their minds, a few I know. After hearing that statement one thing was clear to me was a shareholder and a director are not same.
A shareholder can be a person or a group of people or an organization that holds one or even more shares in a company. They are the owners of the company. They have the share in the profit of the company with the potential to lose if the company does poorly.
Director can be called as an appointed or elected member of the board of directors who has the responsibility of implementing the policies of the company along with the other directors. They can also be called as company’s agent. The directors have to report directly to either vice president or the CEO of the company in order to inform them about the progress of the company.
This is all I knew about them. But to find answers to my question I surfed through the net, asked friends about what is the difference between them. Answers I got were
“Shareholders and the director have a very different role to play in the company. Shareholders are the owners of the company whereas the director is not the owner but his work is to manage the company.” This answer given to me was not giving me any information or clearing my doubt. Hence another answer I got from another person was
“The director is in control of the day to day running of the business of the company with having access to the company’s information while a shareholder has the ultimate power to remove any director from the board of directors by resolution: CA 206, sec 168.”
There are also rights and responsibilities of both shareholder and director
Director has responsibilities like
- Determining the companies objectives and policies
- Monitoring the progress in achieving the goals of the company
- Accounting about the company’s activities to the various relevant parties like ‘shareholder’
Shareholder has responsibilities like
- Authorizing a service contract for the director to give him job security
- Changing the name of the company if required
- Removing a director if his work is not satisfying
After hearing all the answers the confusion in my mind was very clear and I was able to make a clear picture in my mind about a shareholder and a director by the time I reached my office.
Conclusion:- A business is a two way street both the parties that is shareholder and director need to work in coordination from day one. If this doesn’t happen the business will never fly.
About the Author
Lokesh Sharma is Marketing Manager at QuickCompany.in a leading website registering Companies and Trademarks in India.
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