The Difference Between Directors & Shareholders

We talked last week about the process for bringing on another Director into your business. 

This week we’re exploring the similarities and differences between directors and shareholders. 

Now at a high level: 

Directors: 

 - Are a formally registered director of your business. 

 - Every private company needs to have at least one Director. 

 - Takes on certain risks and liabilities associated with your business. 

 - Makes day to day decisions about where your business is going.  

 - Typically get paid a Directors fee on top of their salary.  

Shareholders: 

 - Are formally registered shareholders of your business. 

 - Are owners of your business. 

 - Don’t typically get involved in day to day decision making (unless they’re a Director as well). 

 - Only get involved in voting on bigger business decisions in accordance with the shareholders agreement or company constitution. 

 - Usually buy into your business to get a % of ownership. 

 - Get paid dividends out of company profits in proportion to their ownership. 

Now Directors aren’t necessarily owners of your business, unless they’re shareholders as well. 

However typically, most Directors are shareholders. 

Given they’re responsible for making big picture decisions about where your business is going. 

It makes sense Directors would want ownership and upside on the growth of your business.  

But Directors don’t have to be shareholders if they don’t want to be. 

Shareholders also don’t need to be Directors. 

As your business grows, you’ll likely offer more and more ownership to next gen shareholders.  

And most of these shareholders won’t be Directors until the current Directors are ready to step down or away.  

Then it becomes appropriate to appoint some new Directors into the business for succession planning. 

And the reason for keeping the number of Directors small in your business, but being OK with a larger number of shareholders is: 

 1) Honestly you don’t want too many ‘cooks in the kitchen’. 

You don’t want too many people involved in the day to day decision making because it can get messy and slows things down.  

 2) Having a larger shareholder base can be beneficial as you then have more people in your business incentivised to push, do more and help grow the business. 

It’s a leveraged approach to getting support to grow the business, because they receive dividends and ownership proportional to the company’s success. 

It’s not all on you. 

The other thing to note is that typically for our industry - Directors and shareholders are also employees of the business. 

And most shareholders agreements and company constitutions are written that way. 

Because most businesses want the people making big picture business decisions and taking ownership in the company to be fully focused and invested in the business - by being employees as well. 

But if you want to bring in an external Director or shareholder - you can absolutely do that (it’s your business!) 

A concept that gets adopted reasonably regularly as businesses grow, is bringing on Non-Executive Directors (NED’s). 

These are external Directors that aren’t formally registered Directors of your business. 

But come in and provide strategic advice and a different perspective on the growth of your business. 

They typically attend monthly board meetings and other ad hoc meetings as required.  

Side note - this concept is exactly why I started our Boardroom program - to provide strategic advice, help and support to our members. 

We’re essentially NED’s for our Boardroom members - hence the name ‘Boardroom’. 

And at the end of the day, it’s completely up to you how to structure your business and who becomes a Director vs shareholder. 

It’s your business - structure it how you want to give you the life and the business you want. 

Hope this helps. 

And if you’d like to join us.  

We’re running an online workshop in a few weeks’ time called ‘The Profitable Consultant’. 

In this workshop, we're going to be working specifically on the 3 x core strategies to help you run your business more profitably. 

And grow with confidence. 

If you'd like to join us, follow this link to register now >> Click Here

Tickets are $100 and the workshop is capped at 10ppl. 

Would love to work together help you build and run a more profitable consultancy. 

See you there! 

Josh 

PS: If you’re interested, here are 4 ways I can help you right now: 

1.  Subscribe to our podcast | Looking to grow your consultancy? Our weekly podcast is packed with the latest tips, tricks and strategies. Learn how to run a more efficient business and scale successfully – no fluff, just actionable and practical advice from someone who grew a consultancy to $30M and exited successfully - Click Here to listen & subscribe now! 

2.  Download our free Business Plan template that will help you build out your Business Plan & grow your business in a consistent and step by step manner – Click Here to download now 

3.  Join our next online workshop – The Profitable Consultant | Learn how to build a Profitable Consultancy, that generates consistent 30% net profit margins - Register here

4. 4. Book a 15-minute Business Growth Call | A short, no-obligation catch up where we can touch base and really look at where you are now, where you want to be, and then build a personalised plan together for how to get you there – Click Here