Shareholders VS Directors
During incorporation, we understandably get asked a lot of questions about shareholders and directors, and many still think they are the same. However, both roles are very different with their own sets of roles, responsibilities and rights.
Shareholders are owners of the company and own shares. On the contrary, directors are appointed, by either the shareholders or the board of directors, to manage and/or operate the business. Both roles hold a key position in the company when it comes to its longevity and profitability. Read on to learn more about their roles and responsibilities.
Roles & Rights of A Shareholder
As mentioned above, a shareholder is the owner of a company. Thus, their main role revolves around having a financial stake in the company – shareholders do not involve themselves in day-to-day operations and management.
Roles of A Shareholder
Shareholders own a part of a company by purchasing and owning shares. Their primary role is to provide support financially in exchange for ownership of the company.
- Annual General Meetings (AGMs)
Shareholders must attend and participate in AGM – a meeting for shareholders to understand the financial and overall health of the company from the directors. This meeting is also a chance for shareholders to vote on matters that require the owners’ approval.
*All companies in Singapore are required to hold AGMs, unless specially exempted.
EGMs are not compulsory, but are necessary when certain matters arise. Some company matters urgently require shareholders to discuss and vote on. Hence the EGM is usually held under short notice for the shareholders to come together for major decision-making.
Rights of A Shareholder
Shareholders have ownership and voting rights in the company, according to the number of shares they hold. Their voting rights are exercised during general meetings and when major business decisions need to be made.
Shareholders are entitled to receive a portion of the company’s profit, by collecting dividends. The amount of dividends is distributed according to the company’s financial health and the number of shares the holder owns.
As mentioned above, shareholders have the right to attend meetings that involve them. During these meetings, shareholders may have to exercise their voting rights to make important decisions for the company.
Roles & Rights of A Director
The director acts as the hand and legs of a company. Their primary responsibility is to manage and make decisions on behalf of the company. They are responsible for updating and reporting to shareholders on important matters.
Roles of A Director
Aforementioned, directors are appointed to predominantly manage and operate the company. This includes hiring and managing staff and overseeing day-to-day operations.
Managing a company comes with a ton of decision-making. For the longevity of the company, is it important to establish a meticulous approach to ensure effective decision-making.
Directors have the power and responsibility to fulfil their duties to act in the best interest of the company. To put a name to it, directors have a fiduciary duty to the beneficiary, which in this case is the shareholders.
Rights of A Director
Directors are given the authority to represent the company during events such as contract negotiations and entering into agreements. They are the rightful representative and can make binding decisions on behalf of the company.
Directors have the right to be appointed to the board of directors and have the rights to participate in the removal of directors albeit through a formal process.
Directors have the rights to access to company information such as financial statements and operational reports – these documents are accessible so that directors can make informed decisions.
Sole Director & Shareholder of A Company
According to the Companies Act in Singapore, it is possible for an individual to be the sole director and shareholder of a company. If you prefer full control of your company, this option is viable. But is this the best decision? Below are some key points to note.
The sole director is no different from a board of directors. He/She will be responsible for managing the company’s day-to-day operations and decision making. Since the sole director will also be the sole shareholder, fiduciary duty to act in the company’s best interest is guaranteed.
The same sole director can own 100% of the company’s shares and will be the sole shareholder and owner. He/She is entitled to 100% of the benefits and dividends as well.
Being the sole shareholder and director of a company does not change the benefits of a private limited/limited company – limited liability protection. His/Her personal assets remain a separate legal entity from the company, and are not at risk of the company’s debts.
The above pointers shine a positive light on being the sole shareholder and director of a company. However, it is important to note that having multiple shareholders and directors have their perks such as shared decision-making and diverse expertise.
In conclusion, Singapore is generally flexible with the shareholder-director governance structure. The decision to be a sole director and shareholder, or have a separation between ownership and management should be made in the company’s best interest to ensure effective governance and longevity of the company.