Understanding the differences between a director and a shareholder is very important if you are running a small business.

A shareholder is someone who owns shares in a company and with those shares (assuming ordinary shares) has a right to income (dividends) , to vote, to capital distributions etc. The shareholders of a company appoint the directors to run the company on their behalf and the directors will likely receive a salary for this duty.

The directors are officers of the company and should be managing the company on a day to day basis and making the decisions for the benefit of the shareholders.

It is the directors of the company that have to ensure they are running the company according to UK Company Law and it is the directors that could find themselves in trouble if they are running a company insolvently or if they are in breach of Company Law. It is also the directors who are responsible for meeting all the filing deadlines with Companies House for annual returns and accounts.

Some key decisions have to be made by the shareholders at a General Meeting, but most decisions will be made by the directors.

Dividends are paid to shareholders and salaries are potentially paid to directors.

The complication is often because for many small businesses in the UK and certainly for a lot of our clients they are both the director and the shareholder, but it is still important to understand the differences between the two.

As accountants for small businesses we can take care of all your company secretarial and accounting needs so you can focus on running your business.