A director runs the company. A shareholder owns it. In a great many small companies they are the same one or two people, which is exactly why the distinction goes unexamined until it matters.
The difference in practice
Directors make operational decisions, carry legal duties, and are the people the CIPC record names. Shareholders own the company, share in its value, and vote on the matters reserved to them — including, in the ordinary course, who the directors are.
So a person can run a company they do not own, or own one they have no say in running. Both happen, and both cause surprise when nobody set out the arrangement.
Where the record lives
Directors appear on the CIPC record. Shareholding does not — it is recorded in the company's own securities register, which the company is obliged to keep and which many small companies simply do not.
That gap is worth closing. Where there is no register and no written agreement, ownership rests on recollection, and recollections diverge exactly when the business becomes worth something.
If more than one person is involved
Have a shareholders' agreement. Not because you expect a falling-out — because the questions it answers are ones you cannot answer later without a dispute.
- Who owns what, and what happens if somebody puts in more money.
- What happens if somebody wants out, or stops working, or dies.
- How somebody's shares are valued if they leave.
- Who decides what — and which decisions need everybody.
- What happens if the two of you simply disagree.
An equal split between two people with no mechanism for deadlock is the single most common structural mistake in small companies. It works perfectly until the first serious disagreement, and then nothing can be decided at all.
Giving shares to somebody working in the business
Common and often sensible, and worth structuring rather than promising. Shares handed over in year one to somebody who leaves in year two are gone, and you are now in business with a former employee.
Vesting over time, and a clear provision for what happens if they leave, addresses that. Take advice — there are tax consequences to how equity is given to somebody who works for the company, and they are easier to plan for than to unwind.
Directors' duties are personal
They attach to the individual, not the role: to act in good faith and in the company's best interests, with reasonable care and skill, and to avoid conflicts.
Somebody accepting a directorship as a favour, or because it seemed administrative, is accepting those duties. Anybody being asked to be a director of a company they are not involved in running should understand exactly what they are agreeing to.
General guidance, not legal or tax advice. Shareholders' agreements and share incentives are areas to take proper advice on.