In a nutshell a shareholder owns a company whilst a director manages a company.
It is possible for a person to be both a director and a shareholder but it is important to understand the roles, responsibilities and rights of each role.
Shareholders
What is a shareholder?
Shareholders quite literally hold a share in the company, representing that they own a percentage of the business.
Rights and responsibilities of a shareholder:
The biggest benefit of being a shareholder is if the company makes a profit and declares a dividend, shareholders are entitled to receive dividends. The amount they receive depends on how many and what type of shares they own in proportion to the other shareholders.
It is important to note that dividends aren’t taxed at source, so you might need to submit a Self Assessment tax return to report any dividends you receive and pay tax on them.
Owning shares can also give shareholders voting rights in the company. These votes tend to be about big picture decisions rather than day to day decisions. These can include things such as;
- Changing the nature of the business
- Issuing shares
- Appointing or removing a director
- Approving directors’ loans
Directors
What is a director?
The role of a company director is usually much more hands-on, and they typically spend more time dealing with the day-to-day running of the business. They also have a lot more responsibilities than shareholders. It’s a directors job to manage the company effectively, and to make sure it complies with the law whilst benefiting its shareholders.
Rights and responsibilities of a director:
Directors can pay themselves a salary from the company.
It is quite common for a person who is both a director and shareholder of the same company to take a tax efficient combination of a lower salary and then dividends to pay themselves. The amount of salary you take to be tax efficient depends on your other income, and who else is involved in the business.
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Being a company director also means that you can lend money to or from the company, known as a Director’s Loan. There are tax rules for using your Director’s Loan Account though, so make sure you are familiar with these.
Blog Suggestion: How to use a directors loan to take money out of your business
Typical responsibilities of a director will include:
- Employing and managing staff
- Managing payroll
- Registering for VAT and making MTD VAT submissions
- Submitting the Company Tax Return and paying Corporation Tax
- Organising shareholder meetings, and other administrative tasks relating to shareholders
Of course, there are quite a few of the above responsibilities that our team here at Pink Pig can help you take care of.
If you would like to have a knowledgable team in your corner, guiding you through it all and keeping you tax-efficient, please fill in our Quick Questionnaire and we’ll be happy to talk!
