If you think of a large business, like a High Street retailer, for example, they have lots of different stakeholders – customers, suppliers, lenders, employees, directors, shareholders and more. Each has a different function.
The same is true with your business, even if you’re a one-man/woman band. You’ll be wearing different hats:
Shareholder – that’s you, the ultimate owner of the business. You own up to 100% of the shares and in holding those shares you are entitled to be paid a dividend if the company has spare cash at the end of the financial year. You may also invest money into the business if it needs it.
Director – that’s you. You’ve been appointed by the shareholder(s) to be legally responsible for the business and to make decisions in their best interests. You need to sign off the annual accounts and send information to Companies House and HMRC each year. If the business becomes insolvent it is the director who needs to answer questions about it. You might call yourself the Chief Executive Officer (CEO) or Owner or President or something else. Executive Directors are normally employees, Non-Execs may not be, but they could be paid for their time. See the butt on this.
One special director is the Chairman/Chairwoman. Their role is to lead the Board of Directors and run the Board meetings. If you're going to have a Board then it's a good idea to appoint someone other than yourself to be the Chair. Most Chairs are non-execs, i.e. they don't have a full time role in the company.
Employee – that’s also you. You’ve been appointed by the director to be employed by the business to perform a certain function. You are entitled to a contract of employment and to be paid a salary, from which you will pay tax, national insurance and pension contributions. The company will also pay NI contributions on your behalf and may also contribute to your pension.
Creditor – that might also be you. Instead of (or as well as) investing in shares you’ve lent the business some money, to be repaid at some point. You can set reasonable interest terms.
Debtor – again you. You may have taken a director’s loan and owe the company some money. Be careful, you may be taxed on this. It's not a good idea to carry loans across the end of the company's financial year.
You can be all of these stakeholders at the same time. It might seem a bit silly to be wearing multiple hats but each has a specific role to play. For example, if you sell the business you might remain an employee but are no longer a shareholder, and maybe not a director. As the business grows and more people become involved you may have more shareholders and you'll sit on your Board with other directors that you’ve appointed.
Just keep these various roles in mind and your responsibilities in each of them.
Comments