WHO IS A SHAREHOLDER?
Under the Companies Act, 2013, a shareholder (also known as a member) can be any person, company, or institution that owns at least one share in a company. This ownership of at least one share in any company gives them a legal stake in the company and entitles them to certain rights and responsibilities.
A person can become a shareholder in three main ways:
- By subscribing to the company’s Memorandum of Association (MOA) at the time of incorporation.
- By purchasing shares directly from the company during a new issue.
- By acquiring shares from an existing shareholder — through sale, gift, or inheritance.
While shareholders are the owners, they don’t manage the company directly. Instead, they appoint directors to run the business on their behalf. Their influence is exercised mainly through voting rights and attending general meetings.
WHO IS A DIRECTOR?
Under the Companies Act, 2013, a director is defined in Section 2(34) as “a director appointed to the Board of a company.” This means only individuals who are formally appointed to the Board of Directors are recognized as directors under the law.
So Directors are basically the individuals who are elected to actually act as the representatives of the shareholders by establishing and implementing policies and decisions and act in the best interests of the shareholders.
KEY DIFFERENCES BETWEEN SHAREHOLDERS AND DIRECTOR –
| Particular | Shareholder | Director |
| Role | Owner of the company | Manager of the company |
| Definition | Member under Section 2(55) | Director under Section 2(34) |
| Appointment | By subscribing to shares or acquiring them | Appointed by shareholders or Board |
| Eligibility | Can be an individual or entity | Must be an individual (natural person) |
| Primary Function | Invest capital and vote on major decisions | Oversee daily operations and ensure compliance |
| Liability | Limited to unpaid share capital | Can be personally liable for breach of duty |
| Decision-Making | Approves major changes | Makes strategic and operational decisions |
| Minimum Requirement | Public Co.: 7, Private Co.: 2, OPC: 1 | Public Co.: 3, Private Co.: 2, OPC: 1 |
| Transfer of Shares | Shareholders are free to
transfer their shares subject to AOA of the Company |
Directors can be removed by shareholders in an EGM by a simple majority or under Section 164 |
| Remuneration | Entitled to dividend | Entitled to Remunerationand sitting fees |
Conclusion –
To conclude shareholders and directors form the foundation of a company’s governance and operations, but they both have distinct roles. Shareholders are the owners, contributing capital and shaping major decisions through voting rights. Directors are the managers, responsible for company’s daily affairs while complying with legal and fiduciary duties.
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