Difference between a Shareholder and Director in Private Limited Company

Difference between a Shareholder and Director in Private Limited Company


Minimum Requirement to Form a Private Limited Company

The basic requirement to form any private Limited Company is that it requires a minimum of Two Shareholders, a minimum of two Directors, authorized share capital of a minimum of 1 lakh, and at last an office space in India. So these are the basic requirements of a Private Limited Company. But plenty of people had a doubt about the difference between Shareholders and Directors. And plenty of people believe Directors are the owners of the company!! Are they? So this article will help to understand more about Shareholders and Directorship.


Who is a Shareholder?

Shareholders are called members of the company in other words they are the owners. The shareholders own a part of the business by way of investing in the company and holding the respective shares. Yes, they are the owners of the company but they do not run the company. But if you ask me, how do they get to benefit from the company, here is the answer. The primary monetary benefit is through dividend which is reaped from the profit of the company. The secondary monetary benefit is by share value which they can sell at any point in time with the approval of all other shareholders. The shareholder who owns more than 50% of the share is called a major shareholder. And the shareholders who own below 50% of the shares are called minor shareholders

Minimum and Maximum number of shareholders

As per the Companies act, to form a private limited company, it needs a minimum number of 2 members/shareholders and there can be a maximum of 200 members. The shareholders could be natural persons or companies, including foreign companies.

Roles and Responsibilities of Shareholders:

  • The primary responsibility of a shareholder is to appoint the right Directors for the company
  • The shareholder has the responsibility to draft the policy of the company
  • It is the responsibility of Shareholders to appoint the company’s auditors.
  • Duty to be in touch with other members of the company so that they can see the work progress of the company.
  • Their main role is to attend meetings and discuss whatever is on the agenda to ensure the directors do not go beyond their powers – and provide shareholders’ consent where required.

Rights and powers of a shareholder:

  • The shareholder has the right not only to appointing the shareholder but also to remove them from office
  • The right to inspect the company’s books and records
  • The other primary right is to attend the annual meetings
  • With the right to vote on key matters shareholders shall have the right to receive dividends.
  • To change the company name or to initiate the winding off process


Who is a director?

Directors are the supreme executive authority who controls the management of a company, and the directors are collectively known as the Board of Directors of the company. A Director is elected by the shareholders for the purpose of managing the affairs of the company. As the Private Limited company is an artificial judicial person but it cannot act on its own, so it acts through the agent called the director who is a natural person.

Are directors owners of the Company?

Unless the articles say so (and most do not) a director does not need to be a shareholder and a shareholder has no right to be a director.

Minimum and Maximum number of Directors

To form a private limited company minimum of 2 directors are required. And there can be a maximum of 15 directors in a company. A director can hold the office of a maximum of 20 companies.

Qualification of a Directory:

  • Should be an individual, so a company or an organization cannot become a director
  • Should be a major
  • Should be of sound mind.

Roles and Responsibilities of Directors

  • He is the agent of the company who is responsible for the running business on behalf of the shareholders of the company.
  • Any Whole-time director appointed by the Board of Directors and approved by the shareholders of the company acts as an employee of the Company by managing day to day affairs of the Company.
  • Director is like a trustee for the company, its money, and for the property.
  • The director is responsible to act according to the AOA of the company

Difference between Director and Shareholder:

Director: Shareholders own stock in a company so they are considered owners, whereas the directors are the officers of the company

Shareholder: The shareholder doesn’t have any role to play in the day by day activity of the company, whereas the directors are responsible to run the business

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