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Company Shareholders

Find out what you need to know about forming a UK company

Company Shareholders

What are the roles of company’s shareholders and what do they actually do? Before jumping to their roles, at first, let’s discuss what shareholders actually are. A shareholder is an individual or person that owns at least one share of a company’s stock. In simple words, a shareholder is a person that owns a company. Shareholders can be also called as members or stockholders. They invest their funds in a company by buying its shares, and have the potential to earn profit from the business if it goes well.

Not only individual persons can become shareholders. In fact, other institutions and companies can also buy the shares of a company. And these shareholders can also get the profit if the company works well. In the other hand, when a company doesn’t work well, hold operations, or stop trading then all the shareholders can lose their money with a decrease in its stock price.

As a shareholder in a company means you are not individually liable for the debts or other financial obligations of the company if something goes wrong with the company. The role of shareholders in company’s debts is completely different from the role of a sole proprietor. A sole proprietor is personally liable for all company’s debts. This means that if the company faces loss, its creditors cannot demand payment from shareholders like they could from the owners of privately held entities.

Do shareholders have a role in the company?

Shareholders have nothing to say and have no power to decide how a company can proceed. This role and responsibility depends only on the board of directors and internal management structure of the company. For some shareholders, this is completely fine, because they don’t want to deal with any kind of responsibilities or have any direct involvement in the company. They are happy to just receive the returns on their investments they made in the company. When the company performs well and share prices go high, the shareholders can trade their shares on the stock exchange and sell then further for a profit. This can make the shares of the company a complete liquid investment.

The contract of a corporation specifies the rights of a stockholder and what can they do. Shareholders have a right to inspect the company's books and records or sue the corporation for misdeeds of the directors and officers.

Shareholders are allowed to attend the AGM of the company so that they can hear what is a company doing and its position and performance in the market space. Common shareholders are also entitled to vote on major corporate matters, such as who sits on the board of directors and whether a proposed merger should go through. If a shareholder is not present in the meeting physically then they can listen to or join the meeting via conference call or vote by proxy. They are also allowed to vote themselves onto the board of directors.

Shareholders of the company can also be called as members and can be become the shareholder of the company by approving to take the minimum of one share in the company. Shareholders are the owners of private companies limited by shares. They are also called members and agree to become part of a company by taking a minimum of one share in it. A number of shares held by each person represent how much of the business they own. In turn, this determines their decision-making power, their profit entitlement, and the extent of their personal liability for debts.

The role of a typical shareholder includes an investment in a business with an expectation of getting a portion of profits in relation to their shareholdings. If something goes wrong with the business, then the shareholders have to contribute to the company’s debts up to the limit of their legal responsibilities. This basically represents that those shareholders have lost all the money which they invested while purchasing the shares of the company.

What responsibilities do shareholders have?

A shareholder has so many rights. They can decide on who sits on the board of directors by voting, appoint new directors of the company, remove the old ones, and decide on what powers are applicable to the directors. They are responsible for deciding the salaries of the directors and having the right to receive a portion of any dividends the company declares. They have also the rights to declare the transfer of the company shares and finalizing the rights related to the shares.

After the formation of a company has taken place, a shareholder taking up the shares can be called as a shareholder, member, stakeholder, or an owner or part-owner of the company. This is completely different than being a subscriber. A subscriber is a person who was the first member of a private limited company during its formation time. It means, that subscribers have added their names to the memorandum of the association. And by doing so, they are agreed to become the part of the company. Also, it specifies that if the real subscribers retire, leave the company, or even dies, their name will stay on the memorandum for long.

Is there a difference between a shareholder and a guarantor?

Shareholders are the people or industries who are limited by their shares. Whereas guarantors are known as the company’s owners who are limited by guarantee. Whenever a company receives profit, shareholders also get a percentage of that profit as per their investment or number of their shares they held in the company. On the other hand, companies that are limited by guarantee don’t have any shares or shareholders.

Companies limited by guarantee are only formed for the non-profit firms, including community groups, sports clubs, societies, etc. So, there are no chances of that guarantors can take any profits for themselves. All the profits made by such companies are invested back for the growth of the organization rather than distributing it in between guarantors. It is done to enhance the equipment and facilities of the company.

In case of the company goes wrong, the shareholders of a company are liable to contribute in the debts of the company. The amount they have to pay for the debts depends on the shares they held in the company, whereas, the guarantors of a company have to pay a decided amount of money for any debts. The amount which they pay is already written on the agreement, so, there it doesn’t affect their personal finances.

Can you be a shareholder and a company director?

In simple words, Yes! The roles of a company’s shareholder and director are completely different. The shareholder of a company is the owner and always there to help a company financially and offer financial security. The company’s shareholder has the power to decide the role of a director, how they can manage the company, and get a percentage of profits made by the company.

The directors of the company are selected to the board especially to manage finances properly and to direct the daily tasks of the company. This is done to manage the company smoothly and to share profits among the shareholders. You can say, this is beneficial for both the company and the shareholders. But, it doesn’t mean that a company’s director cannot be a shareholder or a shareholder cannot be a director. It means the same person can be a shareholder as well as director of the company and can manage the role of both positions.

Let’s take an example - if you are a director and sole member, you can own and direct a company by your own. There can be much more than a director or an owner. If you start a family business by making a partnership with your cousins, siblings, or friends, you all can be the owners and directors of that company. A company can have any number of directors; there is no legal limit for this. The only condition to become a director is: the age of the person should be 16 years he should not be an un-discharged bankrupt, or a disqualified director.

In the UK, you only need to have a shareholder to register your company as a private limited company before you can start your company by yourself. After you company is incorporated, you can add an unlimited number of owners with your company.  If anyone wants to join your company as a member after its registration then it is mandatory to add his/her full name to Companies House, whereas, the contact address is not that important. And, this is the duty of company’s directors to add this information on the members’ statutory register. This information must be kept at the registered office address for the company. According to the law, this register should be up-to-date because it can be inspected by any member of the public at any time.

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