A shareholder owns and controls a limited company through the purchase of one or more shares. A director is appointed to manage a company on behalf of its shareholders. Whilst the roles of directors and shareholders are completely separate and very different, it is normal for one person to hold both positions. Alternatively, a limited company can have multiple directors and shareholders, who may or may not be the same people.
To set up a limited by shares company in the UK, you must incorporate (register) a company with Companies House. This can be done online through a company formation agent, which is the most popular option, or directly at Companies House.
You will need at least one shareholder, one director, and one issued share per shareholder. However, you can also register a company with multiple shareholders, directors, and shares.
The difference between directors and shareholders
Before setting up a UK limited company, it is important to be aware of your duties and legal obligations as a director and/or shareholder.
About company directors
- Also known as company officers
- Can be a natural person (human) or a corporate body (i.e. another company)
- A limited company must always have at least one human director in office
- Minimum age requirement of 16
- Can also be shareholders
- Director appointments are authorised by shareholders
- Responsible for managing a company lawfully and ethically in accordance with the Companies Act 2006 and the Articles of Association
- Required to run the business within the scope of powers prescribed by the Articles
- Expected to promote the success of the business, with a view to making a profit for the benefit of the company and its shareholders
- Receive a salary (and dividend payments, if also a shareholder)
- Rights and powers are determined by shareholders
- Legally responsible for delivering annual accounts, Confirmation Statements, and Company Tax Returns by the statutory filing deadlines
- Must ensure all company taxes are paid on time
- Can be removed and disqualified if they are incompetent, display ‘unfit’ conduct, or breach their contract in any way
- Can be held personally liable and prosecuted if they fail to uphold their legal responsibilities and duties
- Normally authorised to issue and transfer shares, subject to the powers prescribed by the Articles of Association
About company shareholders
- Also known as members. The first shareholders are known as subscribers
- Can be a natural person or a corporate body
- Own some or all of a company by taking shares in the business
- Liability is limited to the nominal value of their shares. If the company gets into debt, members are only responsible for contributing the nominal value of their shares
- Can also be directors
- Receive a portion of company profits in relation to their shareholdings
- Not involved with everyday business activities or management, unless they are also directors
- Have the power to appoint and remove directors and company secretaries
- Can choose which powers and rights are granted to directors
- The proportion of ownership of the company depends on the number, value, and class of shares held
- Their voting rights, capital rights, and dividend rights depend on the Prescribed Particulars attached to their shares
- Make decisions about significant issues such as changing the company name or structure, investment opportunities, issuing shares, appointing an auditor to inspect the accounts, appointing and removing directors, changing directors’ powers, and altering the Articles of Association and Shareholders’ Agreement
- Normally have a right to any surplus capital if the company is wound up
If a company is owned and managed by a sole director and shareholder, that one individual will possess all of the aforementioned rights and be responsible for carrying out all duties. This means that one person will have full ownership and complete control of the company.
You also have the option of setting up a limited company with other shareholders and/or directors, and you can bring in new directors and shareholders at any time after company formation. There is a great deal of flexibility with this type of legal structure, which is why it is one of the most popular choices for new and established businesses of all sizes.
A new company was set up 18 months ago with an associate who at the last moment made his wife the other director and 50% shareholder. After trading successfully for 4 months, I noticed no forward work was being booked? Due apparently to my associate being critically ill !! So I arranged forward work, but was met by objections and complaints from my associate and his wife to try and prevent me doing so. It transpired that they had started the exact same service from a less expensive location, directly against our company( not critically ill!!). Requests for my co director to accept the accounts from our accountants and agree to closing down the company (as they obviously are working against the company) has met with silence!! As there are two Directors but one refuses to cooperate with the company, how can I close the company and resolve the accounts.
Thank you for your kind enquiry, Peter.
Although we can’t comment on specific scenarios, we’ve included some information below which we hope will be useful to you:
To begin with, as you have alluded to, undertaking a company dissolution will require more than half of the directors to agree to it and to sign the corresponding dissolution application. Similarly, annual accounts must be approved by the board of directors, so again more than half of the directors must agree.
In instances where there is deadlock (you are unable to reach agreement among the appointed directors), the first thing you would always do is to check the company’s articles for any deadlock-breaking provisions. If there is a shareholder agreement in place, you would also check there too. They’re not common inclusions, but some companies do have them to avoid stalemates.
Unfortunately, absent of any specific article or shareholder agreement provisions, the options available for breaking the deadlock aren’t particularly numerous. Indeed, they centre mostly on one of the parties agreeing to depart, or perhaps bring in a third party to tip the balance in one side’s favour. For example, one shareholder might agree to buy all of the other shareholder’s shares in the company via a transfer of shares, the other shareholder therefore departing from the company entirely. Once complete, with only one party left in the company, deadlock would cease to be a problem.
Beyond this, however, it might also be possible to take the matter to court. One thing that can be done here is to petition for the winding up of a company.
Deadlock in companies are more common than you might think. Without specific provisions being made, they can sometimes be tricky to get out of. In any cases like the one you describe, we would recommend you seek legal advice to assist.
We trust this information is of use to you.
Regards,
The Rapid Formations Team
2 company directors
1 x working in the business
75% shareholder
1x not working in the business
0% shareholder
1 x one other 25% shareholder
The none working director wants access to the company bank. Can they? And can they grant and independent audit to take place of the accounts
Hi Tony,
Thank you for your kind question.
In the first instance, requirement of an audit is ordinarily based upon the size of the company. The shareholders can also require a company to seek an audit. We are unable to advise of any other means through which an audit of a company may be sought.
With regards to the bank account, any person registered on the bank mandate will have access to the bank account of the company. However, we would advise that you contact your bank directly with regards to the director rights, as this can differ between institutions.
With kind regards,
John
I just wondered if you could advise. I recently asked a broker to look into a mortgage for me. When I told her I had 26% shares in a business she sent me a form to fill in my accountant. We don’t use an accountant we have a book keeper as we use the sage program. The paperwork was for a director owning over 20% shares. We told her that I couldn’t fill these forms in and in fact I am not registered as a director in companies house. She replied that the lenders automatically see me as a director with shares as I own over 20%. So lenders will be limited.
Thank you for your question, Juliette.
In the first instance, if you own over 25% of shares in a company, you are deemed to be a person of significant control. This may be what the broker is referring to. You are not legally a director because you own a certain number of shares – directors have to be appointed on Companies House.
With regards to solving this issue, I would suggest you either seek the advice of another mortgage broker, or seek professional advice from an accountant. If a second mortgage broker informs you of the same situation as you have described above, you should certainly seek professional advice from an accountant.
I hope this is of help.
Kind regards,
Rachel
One person is a Director the other a 50% share holder. ( The share holder had a bad credit rating, hence him having equal shares instead of being named also as a Director)
The Director is not being transparent with his partner / the 50%share holder about the jobs taken on. They are builders and should work always work together or with the knowledge of all works taken on….
They have recently had 5 weeks off, and the share holder is worried that the Director has dipped into their accounts and spent the tax funds. If the Director can draw the money out without the others say so/permission, how can the shareholder prove that he hasn’t had any of the tax funds.
Many thanks for your question, Mary.
Please note that under the Companies Act 2006, shareholders who are not directors are not provided with the automatic right to inspect the company’s accounting records.
Given the seriousness of the scenario being suggested, we would suggest you seek professional legal advice.
We are sorry we are unable to help further.
Kind regards,
Rachel
Hi Rapid Formations Team,
Can you please clarify, I am the 100% shareholder of a company which also has 2 additional directors with no shares. They are on a fixed salary and along with me run are also involved in the day to day running of the business. What type of contracts are they require would it be a Director Service contract and also are they known as executive directors. Thanks
Thank you for your message, Hadi. You are correct that a Director Service Control would be required for the employment of the director by a company. That they shall be known as executive director should not have any impact on the type of contract.
Kind regards,
Rachel
Hi please can someone help me.
I am 50% owner of a company, however, due to my bad credit score I was not named on company house as obtaining a business account proved to be difficult. Can I be a 50% share holder on company house, will this effect the banking situation, as I don’t mind it being in my partners name solely.
Hi Max,
All shareholders of a company need to be reported to Companies House. Your position as a shareholder may affect your ability to open a bank account, although this is ultimately down to the bank in question.
Kind regards,
Rachel
As 50% share holder do I continue to qualify for dividends once I retire from the office?
My partner has no issue with this.
Hi Debbie,
Your entitlement to receive dividends is based on your position as a shareholder. Provided there is nothing stopping you from retaining the shares following your retirement (such as a shareholder agreement), you will still qualify for dividends as and when the company declares them.
Kind regards,
Rapid Formations Team
I am a managing director and a shareholder with 55% and the other 2 directors are also shareholders but now they want to be the decision makers and never want to take my suggestions/
comments/ proposal instead if I do anything for the company eg.(we had a meeting and a decision was made that, an admin person is urgently needed at the office. I interviewed people and employed one.) When 1 of the Directors came to the office and found that, I have employed the admin person he kicked her out and gave me suspension notice and also requested me to give reasons why I should not be suspended. please advise
Hi Wendy,
I’m so sorry to hear you are having issues with your business partners. This is never a pleasant situation to find yourself in.
Your right to make decisions depends on what is stated in the articles of association and shareholders’ agreement, so I am unable to say for certain whether they have any grounds for reversing your decision and giving you a suspension notice. It sounds like there are severe communication issues and conflicting expectations regarding each director’s powers.
Did you take minutes of the meeting at which it was decided an admin person was to appointed? And if so, was it agreed and noted in the minutes that you would solely take charge of interviewing and hiring someone? If so, you’ve done nothing wrong.
You need to all sit down together to determine how decisions are made and put this in writing. If you cannot come to a mutual agreement, I would strongly advise consulting a solicitor to mediate and draw up a agreement that clearly outlines each director’s/shareholder’s role and power.
I hope it all works out.
Best wishes,
Rachel
I am in the process of setting up a limited company on behalf of my husband as his employer/umbrella company have told them they have to do this to be able to get their next pay.
I am stumped as to what the difference is between ordinary/preference/deferred/redeemable shares are? He will be the only Director AND shareholder, can you help? Also, how many shares do we have to state? i.e. would it be just one or what? and what is the normal amount of capital per share? You urgent assistance would be most helpful as we only have 7 days to get this set up including a business bank account!
Hi Stacey,
I wouldn’t worry about the different types of shares – most new companies are set up with Ordinary shares, which provide equal voting, dividend and capital rights per share.
If your husband is going to be the only shareholder, you can set up a company with just one ordinary share with a nominal value of £1. The nominal value is the limit of your husband’s personal liability for business debts.
I hope this helps. All the best.
Rachel
I own 95% of the ordinary shares in my Limited Company and want inject capital and by buying more Preference shares in it. Do I have to inform Company House and if so on what form.
Hi Richard,
You will only have to inform Companies House within one month if you create new shares – this requires the submission of a Return of Allotment of Shares (form SH01). However, if you are simply buying existing shares, you do not have to tell Companies House about these changes until it’s time to submit your confirmation statement – this replaced the annual return.
I hope this helps.
Rachel Craig
A family company has 3 directors – only 2 involved in the day to day running of the company. The non-working director holds 51% of the shares. He is a signatory on the bank account and has made large unauthorized cash withdrawals. He has now demanded an EGM to ratify those cash withdrawals and prevent the other directors/shareholders from holding meetings without him. The 2 working directors would like him to be disqualified as he is not acting in the interests of the company. What process would be involved?
Hi,
Sorry to hear you are having difficulties with one of your directors.
You should contact Companies House or the Insolvency Service for advice and to complain about the director. Here is a link with the relevant contact information: https://www.gov.uk/complain-about-a-limited-company
I hope you get everything rectified soon.
Best wishes,
Rachel
Hi,
I have a question regarding articles of incorporation. If I was to set up a business with a partner today and we are both shareholders and only one of us is a director, how would this be shown on the articles of incorporation?
Thank you
Hi Tim,
The articles will not contain any details about who you choose to appoint as directors and shareholders – this document outlines the rules and regulations for running the company in accordance with UK company law.
The appointment of the first shareholders will be recorded on the memorandum of association. Details of shareholders and directors will also be recorded at Companies House and in your company’s statutory registers of members and directors. These records will be updated when any changes are made to appointments throughout the life of your company.
If you are setting up your company as a joint venture and you will both own equal shares in the company, I would suggest both of you are appointed as directors. As a director, you are legally responsible for the company’s actions and annual filing requirements, so it would be wise to assume equal responsibility if you both own equal shares.
I hope this answers your question, but please let me know if I can help with anything else.
Best wishes,
Rachel Craig
Hi Rachel,
I really appreciate your answer.
Thank you,
Tim
You’re welcome. Glad I could help!
Is there any way I can ask you some more personal questions about the business via email?
Of course, Tim – my email address is rachel@rapidformaitions.co.uk
After read out the aforesaid article I understood the real differences between the shareholders and Directors. many many thanks to the writer
S.M. Arif Mondol
Advocate
Supreme court of Bangladesh
Dear Mr Mondol,
Many thanks for your email. I am delighted to hear that you found this article useful.
Kind regards,
Rachel Craig
I am in situation where I am director and 50% shareholder. My business partner sold his 50% to external company. Now this company (50% shareholder) want to make some changes in day to day running of the company and I do not agree (as a 50% shareholder and only director). Who would have more power to deploy his changes?
Hi Greg,
If you both hold ordinary shares with the same rights attached, neither one of you has more power. A simple majority vote above 50% is required to make changes to the company, so it looks like there will be a bit of a stand-off! However, you should refer to the articles to determine if one party has more rights than the other.
I would advise speaking to a solicitor if you cannot come to an agreement regarding the changes.
Best wishes.
Surely directors can only receive dividends if they’re shareholders?
Hello there,
You are absolutely correct. Apologies, the wording was misleading. I have amended the blog to make this clearer.
Many thanks for bringing it to my attention.
Kind regards,
Rachel