So what’s the difference between a shareholder, director, and officer in a limited liability corporation? People often confuse directors and officers or believe that shareholders must also be a director and/or officer. I’m going to spell it out here to dismiss all the confusion about these three parties by talking about their respective roles and responsibilities.
Shareholder
Shareholders own the corporation through their share ownership. They have the right to attend and vote at meetings (assuming they have voting shares). This often happens on an annual basis, but can happen sooner if they want to change the board of directors they elected. Their role is that of hands-off manager: they delegate their decision-making powers to the board of directors they elect. Shareholders aren’t totally out of the decision-making picture, however. Shareholder must approve by-laws (i.e. power-giving documents which authorize corporate action) and vote on important matters concerning the corporation’s Articles of Incorporation (e.g. issuance of shares, new share class, restrictions on share transfers, restrictions on business, changing the corporation’s name, etc.). But generally, shareholder do not participate int eh day-to0day operations unless they are also officers and/or directors. However: there is no requirement that they be officers and/or directors.
Directors
Directors are elected by the shareholders. The articles of incorporation specify the maximum and minimum number of directors there can be and the by-laws generally have provisions in place for things like director vacancies (e.g. by death, resignation, etc.). Directors meet every so often to decide on long-term strategy and evaluate the progress of the corporation. They themselves delegate decision-making on a daily or more routine basis to the officers of the corporation. Directors are responsible for declaring and paying out dividends to shareholders and get involved in important corporate matters.
Officer
Officers are those individuals who manage the day to day affairs of the corporation. They have titles like CEO, President, Treasurer, Vice-President, CFO, Secretary, etc. but these are just titles and there’s no formal requirement that they have a particular title. The duties and responsibilities of the officers are generally spelled out in the corporate by-laws and more specifically spelled out in an employment contract.
