Have you ever guessed who the owner of the company is? Shareholders or Directors? If Shareholders are owners, then what are Directors for?
Let’s clear up any confusion in this article.
Shareholders and Directors both act in tandem to conduct the affairs of the company. The Board of Directors is like the mind behind the company that looks at the management, day-to-day affairs, and future goals so that wealth is maximized. The shareholders remain the equity holders, aka owners, of the company. Directors make sure that all decisions are made in the interest of the shareholders.
This brings us to the major distinction that a shareholder can be a person, another company, an Limited Liability Partnership, or any other entity, but only a natural person can be a Director.
Powers and Responsibilities
Since Shareholders are the ultimate owners, they enjoy the final say in any major decision to be taken by the company. The workflow starts with the Board of Directors calling a board meeting and passing a resolution on the matter. Once the matter is approved in the board meeting, some matters require the approval of shareholders, as mentioned in the Companies Act, 2013. The matter is then open to discussion with the shareholders.
This is a general workflow, and there are a few exceptions where the Board of Directors exercises the powers by means of a resolution passed in the Board Meeting and not by resolution by circulation, which is defined in Section 179(3) of the Companies Act, 2013. The shareholders enjoy certain powers, like changing the articles and memorandum of association of a company, etc. This means having the power to change the foundation on which the company stands. A shareholder also has the power to appoint or remove a director.
Minimum Numbers to meet Company Formation
- Every public company needs to have at least 3 directors;
- a private company should have 2 directors,
- and a one-person company (OPC) should have a single director.
The maximum number of directors in all these companies is 15. However, shareholders have the power to increase the number beyond 15 by passing a special resolution at a general meeting,
Minimum Number of Shareholders
To form any company:
- A public company must have at least 7 shareholders.
- A private company requires at least 2 shareholders.
- An OPC needs just 1 shareholder.
Perks of Shareholders and Directors
A shareholder is the owner who enjoys a share of the profit, which is the dividend. The declaration of dividends is discretionary and not mandatory. The real perk is the increase in the value of the shareholding.
On the other hand, directors get remuneration for managing the company’s affairs and are also entitled to sitting fees for attending board meetings. There is a monetary limit to the remuneration that a director can get, which is defined in Section 197 of the Companies Act, 2013.
Conclusion
Both Shareholders and Directors have crucial roles to play in conducting a company’s affairs. Though shareholders are the ultimate owners, they appoint directors who are competent to handle the affairs of the company.
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