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Company Shareholders

Guide to Company Shareholders

What do Company Shareholders do? Firstly we need to look at what shareholder actually are. A shareholder is someone that owns at least one single share of a company's stock. In other words, shareholders are the people that own a company. Shareholders can also be known as stockholders or members. They invest their money into the company by buying shares, and have the potential to profit from the company if business goes well.

It is not just individual people that can become shareholders. Other companies and institutions can also hold company shares too, and again these shareholders can make a profit if the company does well. However, all shareholders have the potential to lose out if the company does poorly, or has to wind up operations and cease trading.

Being a shareholder in a company means you will not be personally liable for the company's debts if anything should go wrong. This is very different to being a sole proprietor or part of a regular partnership where you would be liable for the company's debts and answerable to creditors, putting your personal wealth at risk.

Do shareholders have a role in the company?

Shareholders tend not to have any say or influence in the day to day running of a company. That responsibility falls to the board of directors and the internal management structure of the company. Some shareholders are glad about this, especially if they are only interested in seeing a return on their investment rather than having any direct involvement in the company. When the company performs well and share prices go up, shareholders can trade their shares on the stock exchange and sell them for a profit. This is what makes company shares a highly liquid investment.

The corporation's charter will spell out exactly what rights a stockholder has. The most common rights are the ability to inspect the company records and books, the right to receive a portion of any declared dividends, and if the company has to cease trading and goes into liquidation, they have a right to a share of the proceeds once all the creditors and preferred stockholders have been paid.

Shareholders are entitled to attend the company's AGM to hear about the company’s performance, and can vote on who will sit on the board of directors. If a shareholder cannot be present at the meeting, they can listen to the meeting via conference call and vote by proxy. They can also vote themselves onto the board of directors.

Shareholders can also be known as members, and can become a shareholder by agreeing to take the minimum of one share in the company. The shareholders are the owners of private companies limited by shares, and the number of shares held by each individual represents how much of that business they own. For example, a majority shareholder will have more decision making power and profit entitlement than those holding fewer shares.

The typical shareholder role involves investing in a business with the hope of receiving a portion of available profits in relation to their share holdings. If things go wrong, then a shareholder will contribute to the company debts up to the limit of their liability. This usually means losing the money they invested in buying the company shares.


What responsibilities do shareholders have?

A shareholder can vote on who sits on the board of directors, as well as appointing new directors, removing old ones and deciding on what powers are granted to the directors. They may be responsible for setting directors salaries, and authorising dividend structures. They may also have a say over the transfer of company shares, and setting the rights attached to the shares.
After a company formation has taken place, a shareholder taking up shares is known as either a shareholder, stakeholder, member, or simply as an owner or part-owner of the company. This is very different to being a subscriber. A subscriber is someone who was the first member of the private limited company at the time of its formation. This means that the subscriber will have added their name to the memorandum of association, and by doing so, they agreed to become part of the company. This means that if the original subscribers leaves the company, retires or even dies, their name will stay on the memorandum.


Is there a difference between a shareholder and a guarantor?

As shareholders own the company, they are limited by their shares. Guarantors on the other hand are company owners limited by guarantee. Shareholders will receive a percentage of profits made by the company based on the number and value of the shares being held. However, companies that are limited by guarantee do not have shares or shareholders.

Companies that are limited by guarantee are normally set up as non-profit organisations, such as sports clubs, community groups or societies, so guarantors do not take any profits that may be generated for themselves. Any profits made by these companies are usually invested back into the organisation to improve their facilities or equipment.

Where shareholders will be liable to contributing towards company debts up to the value of their shares, guarantors would have to pay an agreed amount of money towards any debt. The amount they pay would have been fixed on agreement, and their personal finances will not be affected

Can you be a shareholder and a company director?

In simple terms, yes! The roles of a shareholder and director are very different. The shareholder is the owner of the company that provides financial security for the company, has control over how the directors manage the company, and also receives a percentage of any profits generated by the company.

Company directors are appointed to the board specifically to manage all the day-to-day operations of the business, and control the finances. This is done for the benefit of the company as a whole as well as the shareholders. This does not mean that a shareholder cannot become a company director, or a directors cannot become a shareholder! The same person can have both roles.

For example, you can own and manage a company by yourself if you are the sole member and director. There can also be more than one owner and director, so if you set up a family business with your siblings and/or cousins, you can all be owners and directors. There is no legal limit to the number a company can have. The only limitations are that a director should be 16 years old or over, they cannot be a disqualified director, or an un-discharged bankrupt.

You only need one shareholder to register a private company limited in the UK, so you can start off by forming your company by yourself, and then add an unlimited number of owners as you go along after incorporation. Anyone joining your company as a member after incorporation will only need to submit their full name to Companies House, no contact address is needed, but it is the responsibility of the company directors to include this information on the statutory register of members. This must be kept at the registered office address for the company. The register must be available for inspection by any member of the public, so it must be kept up-to-date by law.

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