Shareholder vs Director: Understanding the Differences in South Africa

Do you know the difference between a shareholder and a director and what their respective rights, roles and responsibilities are?

Shareholders and directors are two of the most important players in company management in South Africa. While both have an impact on the company's operations, they have distinct roles and responsibilities that are essential for effective corporate governance.

In this article, we'll explore the differences between shareholders and directors in South Africa, their roles and responsibilities, and how to ensure effective company management.

What is a Company?

A company has a separate legal (juristic) personality from its shareholders and its directors. A distinction is made between ownership and management in a company. Whilst directors are appointed by the shareholders and are often one in the same person, these two roles are not one in the same. Shareholders and directors have two completely distinct and different roles in a company.

What is a Shareholder?

A shareholder is an owner of the company (by virtue of owning shares in the company).

Shareholders are individuals or entities that own shares in a company. They are the owners of the company and are entitled to vote on certain key decisions, such as the appointment of directors and the approval of major transactions. Shareholders are not involved in day-to-day operations, but they have a significant impact on the company's long-term strategy.

What is a Director?

A director manages the company for and on behalf of the shareholders.

Directors are responsible for the day-to-day management of the company. They are appointed by the shareholders and are accountable to them. Directors are responsible for making strategic decisions, managing the company's finances, and ensuring that the company complies with relevant laws and regulations.

Roles and Responsibilities of Shareholders

Shareholders' main role is to provide capital to the company and to ensure that the company is being run in a manner that protects their interests. Shareholders have the right to vote on certain key decisions, including the appointment and removal of directors, the approval of the company's financial statements, and the approval of major transactions.

Shareholders also have the right to receive dividends, which are a portion of the company's profits that are distributed to shareholders. They can also participate in shareholder meetings and voice their concerns and opinions about the company's management and strategy.

Roles and Responsibilities of Directors

Directors have a more hands-on role in company management. They are responsible for managing the company's day-to-day operations, making strategic decisions, and ensuring that the company complies with relevant laws and regulations.

Directors must act in the best interests of the company and its shareholders, ensuring that the company's financial resources are used wisely and that risks are managed effectively. They must also ensure that the company's financial statements are accurate and comply with relevant accounting standards.

The job of a director is far more onerous than that of a shareholder. In terms of company law in South Africa, a director has a duty to act in the utmost good faith, for a proper purpose, in the best interests of their companies, honestly and this includes exercising the requisite care, skill and diligence so as to promote the company’s success. Where a director is found to be in breach of their fiduciary duties, they can be held personally liable for any loss, damage or costs sustained by the company as a consequence of any breach of such duties. The purpose of holding directors liable for their conduct is aimed at keeping them accountable for their actions and to promote good governance generally in respect of a company’s operations.

It is for the above reason, that directors have to be very vigilant to always consider when making decisions for the company, whose interests are best served by such decisions (as the interests of the shareholders and the company do not always align).

Ensuring Effective Corporate Governance

Effective corporate governance requires a balance between the interests of shareholders and the management of the company. Shareholders and directors must work together to ensure that the company is being run in a way that is both profitable and ethical.

To ensure effective corporate governance, companies should have clear rules and procedures in place for decision-making, risk management, and compliance. Companies should also ensure that they have a diverse board of directors that represents the interests of all stakeholders and that there is open communication between shareholders and directors.

Conclusion

Shareholders and directors play distinct but equally important roles in company management in South Africa. While shareholders are the owners of the company and have a say in key decisions, directors are responsible for the day-to-day management of the company and ensuring that it complies with relevant laws and regulations.

Effective corporate governance requires a balance between the interests of shareholders and the management of the company. By working together and ensuring that clear rules and procedures are in place for decision-making, risk management, and compliance, companies can ensure that they are being run in a way that is both profitable and ethical.

Barter McKellar’s corporate attorneys have extensive experience in advising directors in respect of their duties and liabilities. We also offer training to directors to ensure that they do not fall foul of the Companies Act and their duties in terms thereof. If you would like to find out more, contact our offices today to schedule a consultation with one of our specialist corporate law attorneys.