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DIRECTOR VS SHAREHOLDER

DIRECTOR VS SHAREHOLDER
DIRECTOR VS SHAREHOLDER

DIRECTOR MEANS

Under the Companies Act 2013, a director is an individual who is appointed to the board of directors of a company and holds a position of responsibility and decision-making authority in the company. The Companies Act 2013 provides a detailed framework for the appointment, role, duties, and responsibilities of directors in India. Here are some key aspects related to directors under the Companies Act 2013

Appointment

  1. Minimum Directors: A company must have a minimum number of directors based on its type and category. For example, a private company must have at least two directors, while a public company must have at least three directors.
PARTICULARMINIMUMMAXIMUM
PRIVATE LIMITED2 (TWO)15
PUBLIC COMPANY3 (THREE)15
OPC1 (ONE)15
PRODUCER CO5 (FIVE)15
  1. Types of Directors: The Companies Act recognizes various types of directors, including executive directors, non-executive directors, independent directors, and nominee directors. Each type has specific roles and responsibilities.

Roles and Responsibilities:

  • Fiduciary Duty: Directors have a fiduciary duty towards the company, which means they must act honestly, in good faith, and in the best interests of the company.
  • Decision Making: Directors are responsible for making strategic decisions and providing overall direction to the company. They participate in board meetings, vote on resolutions, and oversee the management of the company.
  • Compliance: Directors are required to ensure compliance with applicable laws, regulations, and the company’s constitution. They must ensure that the company’s operations are conducted in a lawful and ethical manner.
  • Duty of Care: Directors are expected to exercise due diligence, skill, and care in performing their duties. They must act with reasonable care and apply their expertise and knowledge for the benefit of the company.

Liabilities and Disqualifications:

  • Liabilities: Directors can be held personally liable for any breach of their duties, mismanagement, or non-compliance. They may be liable for penalties, fines, or legal actions.
  • Disqualifications: The Companies Act specifies certain disqualifications that may prevent a person from becoming a director or continuing as a director. These disqualifications include bankruptcy, conviction of certain offenses, and non-compliance with filing requirements.

Disclosure and Declaration:

  • Director Identification Number (DIN): Every director must obtain a unique DIN from the Ministry of Corporate Affairs (MCA) to serve as a director in any company.
  • Director’s Report: Directors are required to disclose their interests in other companies, shareholdings, and any conflicts of interest in the director’s report of the company’s annual financial statements.

SHAREHOLDER MEANS

Under the Companies Act 2013, a shareholder, also known as a member, is an individual, organization, or entity that holds shares in a company. Shareholders are the owners of the company and have certain rights and privileges as outlined in the Companies Act.

Here are some key aspects related to shareholders under the Companies Act 2013:

1. Ownership and Investment:

  • Share Ownership: Shareholders hold shares in the company, which represent their ownership stake in the company. The number of shares held by a shareholder determines their proportionate ownership in the company.
  • Investment: Shareholders invest capital by purchasing shares of the company. The funds raised through share capital contribute to the company’s financial resources and operations

2.Rights and Privileges

  • Voting Rights: Shareholders have the right to vote on important matters affecting the company. This includes voting on resolutions at general meetings, such as the appointment of directors, approval of financial statements, and changes to the company’s constitution.
  • Dividend Rights: Shareholders are entitled to receive dividends declared by the company. Dividends are a distribution of profits made by the company to its shareholders in proportion to their shareholdings.
  • Preemptive Rights: Shareholders have the right of first refusal to subscribe to additional shares issued by the company. This allows existing shareholders to maintain their proportional ownership when new shares are issued.
  • Right to Information: Shareholders have the right to access certain information and documents, such as the company’s annual financial statements, directors’ reports, and minutes of general meetings.

 

3.Liabilities and Obligations

  • Limited Liability: Shareholders have limited liability, meaning their personal assets are generally protected from the debts and liabilities of the company. Their liability is limited to the unpaid amount on their shares, if any.
  • Shareholder Obligations: Shareholders are expected to comply with the provisions of the Companies Act and other applicable laws. They must pay for the shares subscribed and fulfill any other obligations mentioned in the company’s constitution.

 

4. Meetings and Participation:

  • General Meetings: Shareholders have the right to attend and participate in general meetings of the company. This includes annual general meetings and extraordinary general meetings.
  • Proxy Voting: Shareholders have the option to appoint a proxy to attend and vote on their behalf at general meetings if they are unable to attend in person.

 

Shareholders vs Directors: Table of Differences

Parameters

Shareholders

Directors

Induction

Allotment of Shares

Appointment by Promoters / Shareholders

Type of Entity

Any Individual or Non individual entity

Individuals who are not minors

Roles

Holds part ownership of the Company

Controls the management of the company

Responsibilities

Infuses capital into the Company

Ensures that the company is legally compliant

Decision-making

Takes crucial decision regarding company’s financial performance

Takes crucial decision regarding company’s internal management

Liability

Restricted Liability to pay-off the company’s debts

Personally Liable to pay penalties and fines in case of compliance failures

Minimum Number

Pvt Ltd Company: 2
Public Limited Company: 7
One Person Company: 1

Pvt Ltd Company: 2
Public Limited Company: 3

Maximum Number

Pvt Ltd Company: 200
Public Limited Company: Unlimited
One Person Company: 1

Pvt Ltd Company: 15
Public Limited Company: 15
One Person Company: 15

Remuneration

Receives Dividends in the percentage of share of ownership

Receives Remuneration for professional services offered to the company

Removal from Office

Cannot be removed from office unless ordered by a Court / NCLT, but can vacate office at will

Can be removed by shareholders on grounds mentioned in the Companies Act

 

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