In a large listed public company, it is easy to see that the shareholders (the public) are distinct from the directors who are managing the company. It is also easy to see why the shareholders are not liable for the company’s debts and do not directly own the company’s assets. The company, as a separate legal person, owns the assets, whereas the shareholder owns only shares in it. It is also easier to see that the shareholder receives a return in the form of dividends and can easily sell their shares on the market.
In small private companies, the lines between the directors, shareholders and the company may be more blurred. You need to have a firm understanding of the separateness of the persons and entities involved (and the different provisions of the Articles and the CA 2006 that govern them). This is because the reality in small companies often appears to cut across these fundamental principles.
For example, if a small company is set up by two family members, who are also its directors and take all the decisions, it is harder to identify in what capacity they are acting: shareholders or directors. They may have put restrictions in the Articles as to whom their shares can be transferred. The shareholders might even have personally provided guarantees to repay the company’s debts (cutting across the notion of limited liability). The only real difference between a partnership and the situation described may be in the fact of incorporation and in the ensuing result of separate personality.
As a lawyer, one of your key roles is to ensure that the company is governed correctly and in compliance with all relevant legislation and the company’s Articles.