I used to answer many business inquiries every day. One of the common questions is: What is the difference between directors and shareholders? Note that many people do not know the difference between the two. This article will share with you the differences in the roles, functions, and responsibilities of the two in the company.

What are shareholders?

Shareholders are the owners of a joint stock company, English: Shareholders, who provide capital, technology or resources to the company in exchange for company shares. Generally speaking, the founder of a company will be the main shareholder of the company and obtain the main ownership of the company.

At the level of a limited company, we need to determine the share ratio between each shareholder, the number and amount of shares issued. Unless there are special industry requirements or other reasons, the actual investment amount needs to be reflected in the share capital. Generally speaking, the share capital will use $100 or $10,000 as the total issued share capital (because it is easy to count), and the equity will be allocated among the shareholders on this basis. Proportion. Hong Kong does not have capital verification requirements for the issuance of share capital (Mainland companies do have capital verification requirements).

Many people often confuse the terms shareholders and proprietors. Strictly speaking, only a joint stock company has shareholders. That is, if everyone opens an unlimited company and is also the owner of the company, the correct title is proprietor (sole proprietorship) or Partner (partnership).

Liability of Limited Company Shareholders

If the company is a limited company, because a limited company has the status of an independent legal person in law, under normal circumstances, the liability of the shareholders of the limited company is limited to paying the capital corresponding to the equity held by the shareholder. For example: If a shareholder holds shares of Company A worth NT$10,000, after he has paid in all the capital of NT$10,000, he is not legally responsible for paying off the company's debts, and the company's creditors have no right to pay the company's debts. The company’s shareholders have recourse. This is also the basis for the principle of "independent legal person" under company law.

But does this mean that the shareholders have acted arbitrarily based on the limited company? No! There have been cases where, under certain special circumstances, the court has the power to determine whether the shareholders of a limited company need to bear liability for what happened to the company. This is the legendary "lifting the corporate veil". These situations include: shareholders using the company's legal status as an independent legal person to commit fraud; using the company as a tool to evade existing contractual obligations or legal responsibilities; or using the company's legal status as an independent legal person to cover up improper behavior, etc.

Classic British case: Salomon v A Salomon & Co Ltd .

Limited Company Shareholders Rights

• Get dividends
• Change registered share capital
• Modify the company's articles of association
• Change company name
• Get notifications and attend company annual meetings/special general meetings
• Proposing to convene a general meeting of shareholders
• Voting at shareholder meetings
• Appointment or dismissal of directors

*What is a director? **

Director is a legal position of a limited company. It is the company's senior management and an employee. It is responsible for the company's daily operations and strategies. It is appointed by designated personnel by the company's shareholders. Generally speaking, many shareholders of private limited companies will also serve as directors, and Hong Kong Company Law requires Hong Kong limited companies to have at least one director and shareholder.

Directors are responsible for ensuring that the company complies with all provisions of the Companies Ordinance. If a company fails to comply with the provisions of the Ordinance, directors may be prosecuted and, upon conviction, fined for default. Therefore, if investors only invest in the company and do not participate in the actual operation of the company, generally speaking, they will not serve as directors of the company unless they hope to gain more power and supervision by serving as directors.

Liability of Directors of Limited Company

• Responsibility to act in good faith and in the interests of the company as a whole
• Responsibility to use powers for the benefit of the company's members as a whole and for appropriate purposes
• Responsible not to delegate power (except when formally authorized) and to exercise independent judgment
• Responsibility to act with due care, skill and diligence
• Responsible not to conduct transactions of interest, except those that comply with legal provisions
• Responsibility not to use directorship for personal gain
• Responsible not to use company property or information for unauthorized purposes
• Responsibility not to accept personal benefits from third parties due to the director’s position
• Responsible for complying with the company's articles of association and resolutions
• Duty to keep proper accounting records

Follow us @chinglink.hk Let you start a business at low cost