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What’s the Difference Between Directors and Shareholders in Alberta?
Understanding the key difference between directors and shareholders is critical when setting up a corporation in Alberta. It can help you assign the right roles to the right people.
This article will compare the two roles by looking at their responsibilities, liability, qualifications, and more.
The Primary Difference: Ownership vs. Management
The primary difference between directors and shareholders in Alberta is that shareholders own the corporation, while directors manage it.
A shareholder’s ownership interest is represented by the shares they hold (hence the name). Directors are elected by shareholders to oversee management but don’t need to have an ownership interest. They direct the corporation through the decisions they make.
But ownership and management are only part of the picture, there are several other differences that you should keep in mind. Here’s a helpful summary:
Differences Between Directors and Shareholders at a Glance
| Shareholder | Director | |
|---|---|---|
| Ownership | Own shares that represent their interest in the business | No ownership, unless they are also a shareholder |
| Management | No role, unless required by law or a Unanimous Shareholder Agreement | Oversees management of the business |
| Liability | Limited to their investment in the business | Can have personal liability for certain acts or omissions |
| Qualifications | None, but subject to tax rules | Must meet requirements such as age, mental capacity and not bankrupt |
| Term Limit | No limit | Typically fixed terms or reappointed every year |
| Remuneration | Paid through Dividends | Salary or Volunteer |
Ownership
Shareholders purchase and own shares in the corporation. Owning shares gives them rights set out in the Articles of Incorporation and Business Corporations Act. Directors are elected by the shareholders but do not need to own shares themselves.
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Management and Decision Making
Shareholders do not participate in day-to-day business operations but may have the right to vote on certain major decisions (such as amalgamating with another corporation, amending the Articles, or winding up the business).
Directors are responsible for oversight of management and making high-level strategic decisions. They also have default signing authority for the corporation, unless these rights have been curtailed by the Corporation’s constating documents, such as the Articles of Incorporation, corporate By-laws, or a Unanimous Shareholder Agreement.
Liability
Generally speaking, a shareholders’ liability is limited to the amount they invested in their shares.
Directors have a fiduciary duty to act in good faith and in the best interests of the corporation. If directors breach these obligations, they can face personal liability. Directors can also be responsible for things like unpaid wages, environmental contamination, and unpaid corporate taxes.
For a more detailed review of business liability, and how to protect yourself as a business owner, consider reading our Guide to Limiting Liability for Business Owners.
Qualifications and Term Limits
There are no specific qualifications or term limits to become a shareholder, although there can be tax implications for shares held by minors or non-residents. Shareholders continue to own shares until they are transferred, or the corporation is wound up.
Directors must meet certain requirements like being of age, sound mind, and an individual rather than a corporation. Directors also typically have set term lengths that they can serve on the board, or are simply reappointed every year through annual corporate resolutions.
Remuneration
Shareholders may receive dividends based on company profits if they are issued. Directors may be voluntary, or receive compensation for fulfilling their roles on the board.
Summary
Understanding the difference between directors and shareholders helps ensure good corporate governance.
If you have questions about shareholders, directors, or incorporating a business in Alberta, our corporate lawyers can help. Book a consultation today to speak with an incorporation lawyer.
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