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Shareholders have control over the composition of the board. 68 They appoint the auditors and directors and the annual financial statements are con- sidered and evaluated by them at an annual general meeting.
The classic statement, still found in many American law school textbooks, is that directors owe to shareholders, or perhaps to the corporation, two basic fiduciary duties: the duty of loyalty and the duty of care.
While every board member is a shareholder, not every shareholder is automatically a board member. Shareholders who own a certain percentage of the company's shares (usually 10 percent or more) are eligible to serve on the board. However, they must be nominated and elected by the other shareholders.
Shareholders are essentially the owners of a company, while the directors are a person or group who make and approve high-level decisions on the company's behalf.
Shareholders vote on by-laws, the number of members of the board and the sale of company assets and can add restrictions on the types of business engaged in by a corporation.
At the meeting, the director who is being removed can speak and have any written representations read. The resolution to remove the director is passed if more than 50% of shareholders who are allowed to vote, vote in favour.
It's not unusual for companies to have a shareholder and director who is the same person, but the two roles do have different responsibilities and requirements. That said, a director doesn't have to be a shareholder, and shareholders don't need to be directors.
Conflicts can occur when a director-shareholder, who as a director is accountable to all company owners, makes an operational decision that some other shareholders disagree with. It is often difficult to ascertain whether he was carrying out their duty as a director or acting in their interests as an owner.