Shareholder vs director: the difference, shareholder rights and why 75% matters

Shareholders are the real owners of a company. Directors run it. In a small company the same person is often both, which is why the two roles get mixed up, but they are legally distinct. A shareholder owns shares and has the right to dividends and to vote at general meetings. A director is an officer who acts on behalf of the company. The relationship between the two is not symmetrical: shareholders can remove directors, but directors cannot remove shareholders.

What is a shareholder?

A shareholder is a person who owns shares in a company. Shares can be defined as certificates that evidence ownership in the company. If you hold shares, you own a slice of the business.

Equity investors, meaning people who invest money into a company in return for shares, are recognised as shareholders in the same way as the founders. Ownership comes from holding the shares, not from how you came to hold them.

How to find shareholders on Companies House

If you want to know who the main shareholders of a specific UK company are, go to Companies House, type in the company name or number, click on "People" and then on "Persons with significant control". That shows you who holds a significant stake in the company and therefore who really controls it.

Director vs shareholder: the difference

The distinction is simple once you separate ownership from management:

• A shareholder is an owner of the company. Their position comes from holding shares.
• A director is an officer of the company. By officer, I mean the person who acts on behalf of the limited company: signing contracts, taking day-to-day decisions and running the business.

Interestingly, directors can be removed by shareholders, but shareholders cannot be removed by directors. The owners appoint and dismiss the people who manage the business for them, not the other way round. If you are a director without a meaningful shareholding, that is worth bearing in mind, because your position depends on the owners' continued support.

What rights do shareholders have?

There are two main kinds of shareholder right:

• The right to dividends. This is the right to take part in the company's profits when they are distributed.
• The right to vote at general meetings. This is how shareholders exercise their ownership, by voting on the decisions that are reserved to them.

Everything else a shareholder can do flows from those two rights: a share of the money the company makes, and a say in the decisions that matter.

Why you need a shareholders' agreement

If you are setting up a company, or joining an existing one, and there are two or more shareholders, it is very advisable to have a shareholders' agreement in place. The shareholders' agreement details the relationship between the shareholders and the company, and the duties of each shareholder. Without it, you are relying on the articles and the general law to deal with every disagreement, and they rarely say what the shareholders would have agreed if they had thought about it in advance.

Why 75% and 51% shareholdings matter

As a solicitor, I advise my clients, if at all possible, to try to hold at least 75% of the voting shares of a company. Holding 75% allows a shareholder to pass virtually any decision without really needing the consent of anyone else.

If 75% is not possible, try to go for 51%. That gives you a majority, so you control the ordinary decisions, even though you cannot push through everything on your own. The difference between the two is the difference between controlling the company and needing other people's agreement for the biggest decisions, so it is worth thinking about before you agree how shares are split.

Next steps

Work out who owns the company and who runs it, and check that the shareholdings reflect the control each person is meant to have. If there is more than one shareholder, put a shareholders' agreement in place before any disagreement arises, and speak to a corporate solicitor about how the voting percentages affect your position.