What is the Difference between a Director and a Shareholder?

A corporation is a completely separate legal entity from the shareholders who own the shares of the company and the directors who manage the affairs of the company. In many corporations, the shareholders and directors are often the same individuals and the distinction between the different roles can be lost.

 

Most standard Articles of Incorporation grant the board of directors the power to manage the company free from interference from individual shareholders. Unless otherwise specified in the Articles, the directors do not have to be shareholders of the company and can be employees of the company. The directors are primarily responsible for the management of the company including such things as operational decisions to ensure the company meets its financial needs, asset management, and senior staff management. The limits of the directors’ authority will be governed by the Articles of the company. The board of directors is the voice and main representative of the company.

 

A director of a company owes certain fiduciary duties to the company itself. The duty of honesty requires a director to be truthful and open with fellow directors and prohibits any non-approved conflicts of interest. The duty of good faith requires a director to exercise their powers in the best interests of the company and not for their personal benefit.

 

A shareholder is an individual who owns the actual shares of the company. Shareholders are able to vote on resolutions for the company at meetings of the shareholders and it is the shareholders themselves who vote on who the directors of a company should be. Shareholders do not owe any fiduciary duties to the company itself and can act solely in their own best interest.