Directors And Shareholders

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The Shareholder and the Director have totally different roles in a limited liability company. Normally a shareholder is the individual who owns the said Company by holding shares whereas the directors have managing powers. In fact, it appears that there is confusion as to the separation of these two positions and as to the distinction of important factors when it comes to corporate governance. This article aims to provide a clear distinction of the roles of both the Shareholder and the Director in a company and demonstrate the fundamental right of a shareholder.

Subject to the provisions stipulated in the Articles of Association of a company and/or to any decision given by the General Meeting, the Board of Directors is empowered to manage …show more content…

Directors may also exercise their powers over the management of the company even if it means acting against the wishes of the majority of shareholders. The Directors are under a fiduciary duty to act in the best interests of the Company as a whole whereas, the shareholders exercise their voting rights in accordance to their own interest and benefit. However, in recent years, the Courts recognize the fact that acting with a view to the best interest of the Company, does not necessarily mean that the directors should completely disregard and ignore the interests of employees and creditors who are directly affected by the decisions taken by the Board of Directors representing the Company. An exception to this fiduciary duty to act in the best interests of the Company is in the event of the Company’s insolvency, where the interests of the creditors are superior to anybody else and the directors owe a duty to them to ensure that all the affairs of the Company are well …show more content…

Berle Jr. and Gardiner C. Means argued long time ago that Shareholders often are virtually powerless against management. Especially in companies where there are many shareholders, a shareholder may face a situation where his participation interest is not sufficient enough to make control and/or monitoring worthwhile. Thus, Shareholders tend to be rationally apathetic and/or uninterested and they do support the incumbent board on the theory that the Directors are experts and have access to greater information. Indeed, the Shareholders cannot exert direct control over directors while they are in office and they cannot just remove the powers of the Directors. Nevertheless, the Shareholders have a powerful weapon that enforces their protection against the Directors, that is their right and ability to remove or appoint Directors. Such a power is indeed extremely important so as to enable the Shareholders to control the actions of the Board of Directors. Therefore, where a Director does not exercise his power with due competence and/or skill and diligence, in good faith and to the best interests of the Company, the Shareholder has the right to remove him at any time.

It is interesting to note that the distinction should also be made in the roles of Shareholders and Directors where an individual either legal person or physical occupies both roles in a Company. In particular, their roles in the Company should be separated as they entail different rights and responsibilities.

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