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.