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Understanding Business Owners often Conflicting Roles: Employee, Shareholder and Director – A Simple Guide by Wessex Commercial Solutions

2 October 2023

When you’re a business owner, you often find yourself juggling multiple responsibilities. You may wear the hats of employee, shareholder and director, all while being the person handling the day-to-day operations too. At Wessex Commercial Solutions, nestled in the beautiful regions of Devon and Somerset, we recognise the unique challenges you face. We understand that as a business owner, these roles can sometimes clash, and it’s essential to navigate them seamlessly. In this blog post, we’ll dive deep into the intricacies of being an employee, a shareholder and a director, shedding light on the potential conflicts and how to manage them effectively. Whether you’re on the lookout for Xero accountants in Devon or Somerset or seeking dependable business advice, this understanding can help aid you through the complex world of business ownership and structure.

Employee:

Think of employees as the backbone of any organisation. They are the folks hired by the company to get specific jobs done. As an employee, your main job is to do the tasks outlined in your employment contract. You’ll get paid with either a salary or hourly wage, and have tax, national insurance and pension contributions automatically taken from your pay. Most of us have been employees at some stage in our lives, so are familiar with how this type of role works.

Shareholder:

Shareholders have a unique role in a company. They are people or groups that own shares or stocks in the business. Shareholders are invested in the success of the company because the value of their shares and dividend payments depend on how well the company does. However, they usually don’t make decisions about everyday operations. Instead, they use their influence through voting on important matters, such as electing the board of directors or approving major company actions.

Director:

Directors are like the captains of a ship, steering the company’s course and making big decisions. They oversee the company’s operations and make sure it reaches its goals. Directors can be chosen or elected, and they often have a special duty to act in the best interests of the company, including its creditors and shareholders. Directors are usually shareholders themselves, but they have a more active role in managing and governing the company.

Navigating Potential Conflicts With Wearing These Hats:

So, what happens when these roles bump into each other? Well, conflicts can arise. For example, wearing all three hats you may decide to pay dividends rather than salary. This is often the most tax efficient route but you need to be careful and always take professional advice. For example, if you’re losing money then taking dividends could be illegal if you don’t have enough profitable reserves in the company. In this instance you will owe that money back to the company  if your Directors Account is overdrawn. Or you may pay yourself back money that you have leant the business before paying current suppliers, which could  be  reversed in an insolvency situation. And it may lead to future issues with any other Directorships you may have. 

To manage these conflicts effectively, make sure you understand your responsibilities as a Director and set clear boundaries between your roles, making sure you’re acting in the best interests of the business, even if it doesn’t directly benefit your shareholding. It’s all about finding that balance and making decisions that will lead to long-term success.

Harmony in Business:

In the end, being an employee, a shareholder and a director can be a delicate dance. But with the right knowledge and a clear understanding of your roles, you can find the right balance and work towards the success of your business as a whole. So, as you navigate the intricate world of business, keep these roles in mind. Like a skilled conductor, you have the power to lead your business to success in harmonising all these conflicting roles. 

At Wessex Commercial Solutions, we’re here to provide expert guidance on everything related to your business, whether it’s accounting, taxes, strategic planning, or staying compliant with regulations. If you’re looking for Xero accountants in Devon or Somerset or need experienced business advisors, reach out to us today. We’re ready to help you navigate the complexities of running a business and managing its structure.

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About the Author

Linda Carrington

MA(hons) GDipLaw

Practice Management Director

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