MD and founder of HR180, Claire Morley-Jones, is a thought leader across the HR and Strategy organisational functions. Here Claire talks about a client’s recent experiences where senior roles have not been clear and the potentially expensive – and definitely damaging – consequences.
By Claire Morley-Jones
I have recently been working on a large and complex case involving three individuals who are both Directors and Shareholders in the same company. Leaving aside the very intricate ins and outs (and the salacious gossip!), what has become very apparent over the investigation, appeal and numerous discussions is that two out of three do not, in any way, understand the difference between being a Director and a Shareholder!
It’s made me think about similar situations I have dealt with over the years and how there always seems to be a murky underbelly in relation to this issue and how easily the two roles become confused! I thought, therefore, that it was time for a refresher – dry as this subject is.
So, as simply as possible (mainly for my own benefit) – Shareholders OWN the company. The company would not exist as an entity if someone had not invested in it, which brings it legally to life. Directors MANAGE the company. They are appointed, at the Shareholders discretion, to run the company and sort out the nuts and bolts of making it work on a day to day basis!
In the style of Blue Peter here is one I made earlier, and, in a handy cut out and blue tac format in the HR180 White Paper on this subject (please scroll down for link). You know you need this on your wall ?!
|Responsible for managing the company lawfully and ethically in accordance with the Companies Act 2006 and Articles of Association.||Owners of the company by owning some or all of the Shares. Many of our clients are 100% Shareholders (as well as Directors!). They do, however, still have different duties.|
|Can be held personally liable and prosecuted if they fail to uphold their legal responsibilities and duties.||Liability is limited to the nominal value of their shares. If the company gets into debt they are only responsible for the value of their shares.|
|Legally responsible for filing accurate legal documents Annual Return, Company Tax return etc.||Make decisions about significant issues such as changing the company name, structure, issuing shares, appointing an auditor or appointing/removing a Director.|
|Only have those rights and powers as the Shareholders vest in them.||Not involved in day to day activity of running the business.|
|Receive a salary, bonus, commission etc.||Receive a portion of the profits in relation to shareholding (dividend).|
|Also known as Officers.||Also known as Members.|
It’s very important to be clear as to which hat you are wearing when you take important business-related decisions and whether you have followed your Shareholders Agreement, Articles of Association and Directors Service Contracts! It’s also very wise to have these checked to ensure they match – I have been working on a few cases recently where the documents (prepared by different parties) have differing clauses and specifications!
We are happy to take a look over your contracts – at all levels – so get in touch for more information. Meanwhile here is the free download on this subject.
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