What’s the difference between a limited company director and a shareholder?

If you’re considering setting up a limited company for IT contracting, you’ll need to consider what your role would be, and that of any others you might be appointing for involvement within your company.

To that end, writes Christian Hickmott, managing director of Integro Accounting, you’ll likely need to know, if not at least ask yourself, ‘What is the difference between a limited company director and a shareholder?’

Director v shareholder: what’s the difference?

Put simply, a director would run the company and a shareholder would own part (or all depending on share allocation) of the company.

But how much in the company would each role get, and what are their responsibilities?

First thing’s first, you’ll need both!

In fact, when setting up a limited company you’ll need to appoint one or more director, and one or more shareholder. The two don’t have to be the same person as far as Companies House is concerned – a director doesn’t automatically have the right to own shares, just as a shareholder doesn’t automatically have the right to be a director. That is; unless the company’s articles of association stipulate.

In the IT contractor space, the director and shareholder is usually one and the same…

In the case of a typical IT contractor working via a limited company, it’s usual that the sole director is also a shareholder. Doing this i.e. being both, reaps the benefits of why many techies choose the limited company route in the first place – optimum take-home pay thanks to the ability to draw a mix of salary and shareholder dividends.

And a company secretary?

Such a role is not mandatory, but some technologists operating on a freelance basis will choose to appoint another individual as the company secretary, to help with some of the day-to-day running of the business.

Technically speaking, this person can also be a director at the same time.

Director rights and responsibilities

When appointed as a limited company director (either solely or jointly), as part of the Companies Act 2006 you not only take on the responsibility of running the operations of that company, but also become legally responsible for ensuring Companies House and HMRC filing deadlines are met.

This filing includes confirmation statements, annual accounts and tax returns.

As a director, you must also keep adequate and appropriate company records ensuring they are up-to-date and reflective of any changes which your business make (meaning you are obliged to report such changes to the register).

Here, Companies House has listed the full responsibilities of a limited company director (also known as a Personal Services Company director).

In addition to these duties, directors also have the right to hold company board meetings and to check the company’s financial accounts, books and records.

Shareholder rights and responsibilities

Shareholders, if this is their only role within the company, typically wouldn’t have the same level of involvement as a director in running the business.

But shareholders do have certain rights over the company and some decisions – although the level of control will be dependent upon their level of ownership based on the number of/type of shares they own.

Shareholders must purchase their shares, either directly from the company or from the current owner, but that is usually the extent of their financial liability.

And as there is limited liability, a shareholder is only liable for company debt to the value of the shares they own.

Rights of a shareholder include the ability to remove, appoint and change the power of the company directors, as well as decision-making on such things as amendments to shareholder agreements, company name changes and structure changes.

Shareholders do, however, leave the day-to-day management of the company to the directors. Or at least, they are expected to!

How to pay yourself as a director and/or shareholder?

As a director, you are an employee of the company and can draw a salary through the company payroll.

A shareholder can only be paid via dividend payments (if the company profits allow), based on the number and type (the ‘class’) of shareholding they own.

The directors of the company should have regular meetings, which should include deciding whether a dividend should be paid or not.

And what if you are the sole director and only shareholder?

If you’re both director and shareholder, you’ll be able to take both salary and shareholder dividends – so it’s worth considering a lower salary while also issuing dividend payments too, because it could be possible that your combined tax and NI contributions would be less than when just receiving a higher salary alone.

As to the precise level of salary and dividends, that is the subject of conversation which contractor-directors should have with their accountant, usually in advance of this time of year – the dawn of a new financial year! And 2024/25 got underway on Saturday April 6th.

Penultimately, we’d say that being both sole director and the only shareholder does have another advantage – you get full control and responsibility for your own company.

Don’t just settle for any old accountant! Find a specialist

We hope you’ve found this outline of the key differences between the roles and responsibilities of shareholders and directors helpful.

But if you’d like further guidance, we’d recommend speaking with an accountant who specialises in the limited company contracting space (which we do of course), to ensure everything from company formation to take-home pay maximisation is in safe hands!