The Privileges & Responsibilities of Shareholders

responsibilities of shareholdersWhen determining the responsibilities of shareholders, the size of the company plays a significant role on what those responsibilities look like but at the end of the day, a shareholder is a shareholder.

A shareholder owns shares of the company and has a very distinct responsibility and that is to elect the director or directors of the company.

Responsibilities of Shareholders Not Always Understood

The problem is that a lot of shareholders forget that is their sole responsibility. They feel that it is their responsibility to run a company, get involved with the company and even to try and manage the company. They may occasionally do things outside of the realm of being a shareholder but truly their only responsibility is to supply capital to the company through the acquisition of shares and then to elect the directors.

That’s it.

As a shareholder, you have the right to vote out the directors if you feel they aren’t making the right decisions, but only if you have enough votes. It’s an interesting dilemma because once you’ve elected directors, you have to let them do their job.

The Responsibility of Elected DirectorsHow To Value Your Company

In general, the director’s responsibility is to hire the management that’s in charge of running the company. In Canada we have a responsibility as a director to make sure that the company is being properly managed so they align with shareholder interests. This includes ensuring bills are being paid, making sure filings are being done and really anything else that affects the bottom line.

As a shareholder, you really can just sit back and do nothing other than elect the directors. As a director your responsibilities are much higher. You have to ensure the management team that you hired is doing their job it’s their responsibility to make sure the company is successful. It’s a pretty simple structure but a lot of people get it wrong.

Smaller Companies: The Exception To The Rule

In smaller companies, a shareholder might also be the director who is also responsible for overseeing the management of the business. It is certainly possible that all shareholders hold positions within the company in this situation and therefore it becomes necessary to look out for all of the responsibilities as you go down the line. This is generally only the case with smaller organizations though, the process previously mentioned is essentially “the standard”.

The issue is that “traditional” shareholders sometimes think they have more responsibilities and rights such as the right to run the business, but that’s simply not the case. It is the director’s responsibility to hire the management and it is management’s responsibility to run the company. That is unless you have already elected your directors and your directors aren’t hiring the right people to manage the company. In that case, shareholders can vote to replace directors that will hire the right people to manage the company.

In the end, the responsibilities of shareholders comes down to one thing: vote in directors that will hire competent management. As a shareholder, any further involvement than that, such as in the day to day operations of the business, taking over key hiring decisions, etc. serves more to interfere with effective management than promote it. The more that shareholders, directors and senior management understand their key roles, responsibilities and accountabilities, the better off the entire organization will be. Blurring those lines can only hinder progress.

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