What is the difference between the board of directors and shareholders?

In simple terms, the board of directors operate the company while the shareholders are the owners of the company.

Board of directors

The Board of Directors (“BoD”) is the governing body of the company. The BoD is responsible for the overall management and makes decisions relating to company issues and policies. It is also responsible for appointing and supervising the management i.e. the managers of the company and reporting the company activities to the shareholders. At board meetings, the decisions of the BoD are recorded in writing in the form of board resolutions. For instance, a board resolution may be passed for appointing a new director, purchasing another business, the opening of company bank accounts etc. It may act as a compliance document to external bodies when the company has to provide proof of the decisions made by the shareholders/directors of the company. Click on the link for a template of a board resolution that you can customise as per your requirements.

Directors

The directors are responsible for the management of the company and the director’s duties and powers are set out in the company’s articles of association. The directors have a duty to exercise care, skill and diligence codified under the Companies Ordinance. In addition, they have other fiduciary duties such as:

• exercise of powers for a proper purpose;
• Avoiding conflict of interests; and
• Refraining from making profits out of the position as directors
• Act in good faith in the best interests of the company

In case of a limited company, it must have at least one shareholder and director. Both shareholder and director can be the same person.

Shareholders

The shareholders own the shares of the company and therefore are the collective owners (also called members). They have the right to vote at the general meetings, receive dividend, right to receive audited accounts with the directors report, pre-empt shares transferred by other shareholders and the right to receive a distribution in liquidation (after creditors are paid off). In general meetings, the decisions passed by the shareholders are recorded in writing in the form of shareholder resolutions.

The shareholders, upon reaching a certain majority, can pass resolutions for different matters. There are two types of shareholders resolution: “Ordinary” and “Special”. For further information on the two types of resolutions, see “What are board resolutions and shareholder resolutions? What is the distinction between an ordinary resolution and a special resolution?”

Key takeaway

• The board of directors is the governing body of the company while the shareholders are the collective owners of the company.

‍