In a UK company, two groups have very different roles: the board of directors and the shareholders (members). Confusing them (or blurring their roles) is a common source of disputes. Here is a plain-English guide for England and Wales under the Companies Act 2006.
The basic division: management vs ownership
- Directors manage the company. They run the business day to day and make the operational and strategic decisions.
- Shareholders own the company. They invest capital, share in the profits, and have a say in fundamental matters, but they do not generally run the business.
This separation of ownership and control is a defining feature of the company structure. (In a small company, the same people are often both directors and shareholders, but the two roles remain legally distinct.)
What directors do, and the duties they owe
The directors, acting as the board, are responsible for managing the company under the powers given by the articles of association. They make board resolutions on matters like contracts, finance, hiring and strategy.
Crucially, directors owe statutory duties to the company (Companies Act 2006, ss 171–177), including to:
- act within their powers;
- promote the success of the company;
- exercise independent judgement and reasonable care, skill and diligence;
- avoid conflicts of interest; and
- declare interests in transactions.
Breaching these duties can make a director personally liable.
What shareholders do, and their key powers
Shareholders generally don't manage the company, but they control fundamental decisions through their votes at general meetings (or by written resolution), such as:
- appointing and removing directors;
- amending the articles (special resolution, 75%);
- approving major transactions and changes to share capital;
- winding up the company.
They also have ownership rights, to dividends (if declared), to a share of surplus on a winding-up, and to certain information (e.g. the accounts).
How the two interact
- Shareholders appoint the directors and can remove them (by ordinary resolution, with special notice), the main check on the board.
- Directors must act in the company's interests, not just to please particular shareholders.
- A shareholders' agreement and the articles allocate which decisions need shareholder approval (e.g. reserved matters) and which the board can take alone.
- Minority shareholders have protections (e.g. the unfair prejudice petition under s 994) if the company is run unfairly against their interests.
Why the distinction matters
- It clarifies who can do what, directors cannot generally do things reserved to shareholders (like amending the articles), and shareholders cannot simply override the board's day-to-day management.
- It affects liability, directors carry personal duties; shareholders' liability is generally limited to their investment.
- It underpins good governance and avoids disputes about authority.
Key takeaways
- Directors manage the company (and owe statutory duties to it under ss 171–177); shareholders own it and vote on fundamental matters.
- Shareholders appoint and can remove directors (the key control) but don't run day-to-day business.
- The articles and any shareholders' agreement set which decisions need shareholder approval vs board authority.
- Directors face personal duties/liability; shareholders have limited liability plus minority protections (e.g. s 994 unfair prejudice).
Sources
- Companies Act 2006: directors' general duties (ss 171–177); appointment/removal of directors; shareholders' resolutions (ss 282–283); unfair prejudice (s 994)
- The company's articles of association (division of powers between board and members)
- General company-law principles on separation of ownership and control
--- This article is general information about the law of England & Wales as at 2026, not legal advice. For advice on your circumstances, consult a qualified solicitor.