What are the differences between Directors and Shareholders?

In Singapore, just like in most jurisdictions, there are glaring differences between Directors and Shareholders. One of the major differences between directors and shareholders in Singapore is that whereas a shareholder owns part of the company, he or she is not actively involved in the day to day running of the company.

A director, on the other hand takes a more active role in the day to day management of the company provided such powers are within the provisions of the Memorandum and Articles of Association of the company and the Singapore Companies Act. Further details on the differences between directors and shareholders are as follows:

Directors:

For one to register a Private Limited Company in Singapore, one of the key requirements is that at least one of the directors of the company must be a Singapore Permanent Resident, a Singapore citizen or an Entrepreneur pass holder.

In general, the duties of a director do fall under two relatively broad categories. The first category involves statutory duties of care, skill and diligence. The second category involves general law duties or fiduciary duties of good faith and loyalty.

Statutory duties are generally defined as administrative duties and are enforceable through the Accounting and Corporate Regulatory Authority (ACRA) of Singapore. Some of the duties include performing general duties of disclosure. It also includes the maintenance and regular updating of the company’s accounting records and preparing the financial statements for the company to be used during the Annual General Meeting (AGM). The director must also ensure that the first AGM is held anytime within the initial 18 months after incorporation. After this initial AGM, another one must be held every calendar year at intervals not exceeding 15 months.

The director must also ensure that there are regular shareholders and director meetings to review the companies trading and financial position. He or she must also appoint a qualified auditor within the first 3 months after the company’s incorporations. It is also the responsibility of the director to keep and maintain members register and keep other statutory books at the registered offices of the organization.

Fiduciary or general law duties on the other hand are enforced by the registered company and generally imply that all the directors must always act in utmost good faith and in the interests of their employees, customers, creditors, suppliers and the community in general before making a decision. They are also expected to use this privilege to act on behalf of the company wisely; they should also not place themselves in a position of conflict by engaging in activities that conflict the interests of the company.

Guided by the Companies Act Sec 339(3), a director should not incur debts where there is reasonable ground to believe that the company will not be able to offset the said debt. This only comes to play when there are legal proceedings against the company or it is being wound up. Under Sec 157 (2) of the same act, directors are prohibited from using any information they get by virtue of their position as directors to meet their individual gains and enrich themselves or to the detriment of the company.

Shareholders:

In the case of shareholders, their duties are rather straightforward. They tend to be more concerned with ensuring that appointed directors are performing their duties as required and within the law.

In Singapore, all registered companies are required to at least have one shareholder. They are defined as individuals who have invested some money in the company and expect some reasonable return on their investment. As per Singapore laws shareholders have the power to modify, repeal or adopt provisions listed in the Company’s Memorandum or Articles of Association.

They also have the power to approve appointed editors and remove directors from office in case of public companies if and when required. Shareholders also have the power to veto certain capital reductions.

In instances where the board is unable to act, shareholders usually have reserve powers to act on the matter in question. They can also refuse to or ratify directors’ actions. Shareholders can also commence and subsequently prosecute legal proceedings where the suspects control the company.