Do Shareholders Have More Power Than Directors?

Generally, shareholders hold power in a company, and the directors are responsible for its daily operations. Often, shareholders and directors work together and decide the way forward for the company. However, this isn’t always the case, and disputes between directors and shareholders are common.

Conflicts occur when shareholders disagree with the actions taken by directors. Note that certain decisions such as changing the company’s name or amending its articles of association need to be approved by shareholders before they are implemented.

Shareholders have a right to be involved in the company’s decision-making, even though this role is reserved for directors. Depending on the organization’s articles of association, the shareholders may have more rights and powers to decide on the company’s way forward. However, the board of directors makes most decisions, and the shareholders cannot overturn them. But the shareholders can suggest the resolutions to the issues on the decisions made by directors and ask the board to overturn their earlier decisions. Here’s a quick guide.

What’s the difference between shareholders and directors?

Directors are responsible for managing an organization and all its affairs. They provide advice on the direction the company should take. They manage the company’s daily tasks and make the best decisions on behalf of the whole company and not a group of shareholders. 

Directors can legally act on a company’s behalf so long as the corporation’s restrictions and articles of association allow them to. 

Shareholders, on the other hand, are company owners. What percentage they own and control the company depends on the number of shares they own and their percentage of voting rights.

But, most times, there isn’t a clear distinction between management and ownership of the company. In that case, shareholders may also act as directors and wear multiple hats. Read on to learn who has more power between shareholders and directors of a company.

Do Shareholders Control Directors?

To some extent, shareholders have a degree of control over directors. For instance, they vote for the members of the board. However, only a small number of shareholders control the outcome of the election as it’s influenced by modern proxy rules and diffusion of ownership. Often, insurgents can’t win proxy fights.

Shareholders by company’s law vote on how many members the board of directors should have and the sale of the company’s assets. Therefore, they can vote to fire a board member and replace them with somebody else if found guilty of malfeasance or mismanagement.

Can Shareholders Dissolve the Board of Directors?

Yes. Shareholders can vote to remove the board of directors even before their term expires, with or without a proper cause. However, this may not be possible if the company has a staggered board.

The shareholders can then elect a replacement for the directors they removed. However, the ones present at the meeting must form the set quorum, and also the majority of the shareholders with the right to vote must vote to dissolve and replace the board of directors with a new one.

In the case of a staggered board, the shareholders must have a cause to remove the directors. They must also vote and ensure they form a quorum before doing so.

Can Shareholders Sue a Board of Directors?

Yes. Shareholders can sue a director or the whole board through a direct or an indirect derivative lawsuit. Shareholders may bring a direct suit which consists of different theories like:

  • Shareholder’s right to vote
  • Violation of their ownership rights
  • Failure to inspect the records
  • Payment demands for the promised dividends

Shareholders can also file a derivative lawsuit on behalf of the company. But this requires them to meet certain requirements. For instance, the individual shareholder must have shares in the company during the act or omission complained. Or they must be a shareholder by law or operation from the individual that was a shareholder at that specific time. They must also prove that they are representing the company’s interests and not their own.


Shareholders and directors are important to the company. However, disputes among them are common. Companies can thus avoid them through proper structuring of responsibilities and rights. 

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