Phone Phone
Demystifying Corporate Roles: Shareholders, Directors, and Officers – What’s the Difference?

Demystifying Corporate Roles: Shareholders, Directors, and Officers – What’s the Difference?

In many small businesses, one person or a small group of persons occupy all three positions of director, officer and shareholder. However, each role plays a distinct part in the operation and management of a corporation, wielding different powers, responsibilities, and liabilities. While the positions may be occupied by the same person or group, it is important to understand each role’s rights and responsibilities which affect one’s ability to exit from that position, or transfer that position to another party with or without tax considerations.


Shareholders are the owners of a corporation. By owning a share, a shareholder possesses an ownership stake in the corporation of a certain percentage, granting them certain rights and privileges to make decisions over fundamental matters. The number of votes each shareholder holds typically corresponds to the number of shares they own. However, shareholders do not make day-to-day business decisions, as this is the role of directors. Shareholders are passive owners and are not actively involved in the day-to-day operations of a business.

Owning a share in a private corporation is similar to owning a share in a public company in that just because you are a shareholder in Apple or Uber, does not mean that you have the power to make any decisions as it relates to the business of Apple or Uber. The concept here is that owning a share in a private company is owning a piece of capital property, otherwise known as investment property, that will grow in value over time. It does not provide the owner with decision-making power over that corporation’s business.

Upon inception of a corporation, a shareholder typically purchases its shares for say $1.00 or $0.01 per share. Once that corporation’s business grows, the value of the business may balloon to say $1,000,000 and therefore each share (assuming 100 shares were issued) would be valued at $10,000 a share, as the case may be. The important concept here is that the value of a share will typically grow over time.

Exit Considerations

It is important to note that you cannot simply ‘resign’ from the position of a shareholder. A shareholder is a position of ownership. If you own a house, you cannot ‘resign’ from owning a house; you would have to find a purchaser to purchase the house from you. Similar concept applies here. If you occupy the position of shareholder, you cannot simply choose not to be a shareholder moving forward, unless you find someone who will agree to purchase your shares and assume ownership.

Tax Considerations

The most important component here is that any transfer of shares typically garners tax. Tax law requires that all transfers of taxable capital property occur at fair market value. This means that you are not permitted to transfer a share in a private corporation to another person for say $250 when the share is worth $10,000. You cannot determine the transfer price; the transfer price is dictated by the fair market value of the share, and the CRA can challenge your purchase price determination if it feels you transferred a share for less than its FMV.

If a transfer of shares must occur at FMV, and if the share grew in value since inception, then by virtue of this you have a taxable capital gain at the point of transfer of that share. If you can demonstrate that the FMV of the share is the same as your Adjusted Cost Base (ACB) which was $1.00 (which would mean, invariably that the corporation itself has no value), then the transfer of share would not attract tax. In all other circumstances, any transfer of shares will attract capital gains tax to the transferor. There are a few exceptions to that rule such as a s.85 rollover or a s.86 estate freeze or if sheltered under the LCGE, however that is beyond the scope of this article.

Corporate Changes

Accordingly, changing the shareholders of a corporation is not as easy as changing the directors or officers of a company. Changing shareholders typically means there is a taxable capital gain to the exiting shareholder as he or she would be divesting of their shares at fair market value. Often times clients wish to add their spouse or transfer shares to their children and are surprised to learn that unless we elect under the above exemptions, these types of corporate maneuvers will attract tax. A change of shareholders is therefore the most complex of corporate changes.

Profit Distribution and Compensation

As shareholders are owners, it is only shareholders who may receive a dividend from a corporation as a dividend is a distribution of profit from the corporation’s retained earnings income pool. Directors or officers may not receive a dividend; their roles are compensated by way of salary. The distribution of profit typically correlates to the percentage of shares held, i.e. if a shareholder holds 15% of the shares in a private company, they will receive 15% of the declaration of the dividend on that class of shares.


A shareholder will never face liability in respect of a corporation’s operations; the maximum amount a shareholder may lose is the value of their shares or the subscription amount if the shareholder invested at a purchase price. Beyond the loss of their investment amount, a shareholder is not otherwise exposed to losses or liability in respect of a corporation.

Obligations to Contribute to Corporation

Because shareholders are not ‘active’ in a company, shareholders are not required to ‘work’ for the corporation at all. This becomes an important consideration where there are multiple shareholders of a corporation. One may own 50% of a company and choose to no longer work for that company; he or she will continue to receive 50% of the profit of that company even though they are no longer contributing to the corporation. For this reason, where there are multiple shareholders, it is strongly recommended to layer-in a shareholders agreement to require that the specific shareholder contribute in a certain way, if that is the expectation from that shareholder. If you wish to read further on the reasons why a shareholders agreement is recommended, you can do so here.


Directors are individuals elected by the shareholders to oversee the management and direction of a corporation. They act as fiduciaries, obligated to act in the best interests of the company and its shareholders. Directors make crucial decisions regarding corporate strategy, financial matters, and major business transactions. As distinct from the role of shareholder, directors run the business. For doing so, they are typically compensated with a salary. The board of directors, comprised of multiple directors, convenes regularly to deliberate on key issues and provide strategic guidance to the corporation’s officers. Directors are responsible for appointing and evaluating corporate officers, setting executive compensation, and ensuring compliance with legal and regulatory requirements. In smaller family-held corporations, directors do not generally meet annually and instead the directors sign an annual resolution to approve of certain matters. This is typically prepared by the corporation’s law firm and contained within the ‘annual resolutions’ bundle that are signed each year.

Signing Authority

As directors are in a position of control of a corporation, it is the directors who have signing authority on behalf of a corporation vis-à-vis its contracts or with respect to its banking matters. It is important to note that a financial institution will provide banking access to the directors (and officers) of a corporation, but not its shareholders for the reasons indicated above.


A director has limited liability in respect of a corporation. While a longstanding and fundamental principal of corporate law is that a corporation’s debts, obligations and liabilities are not the liability of its shareholders, directors and officers, a director can be liable under limited circumstances:

  1. In Canada, a director can be liable to the CRA for unremitted trust funds which are HST and payroll taxes to the CRA. If the corporation fails to remit these types of tax to the CRA, the CRA can and likely will raise a personal liability assessment against the individual director(s) for those unremitted amounts.
  2. In Ontario, a director can be held liable for unpaid wages (not including termination pay and severance pay) but including vacation pay, holiday day and overtime wages to their employees. This liability is subject to a maximum of six months wages owed to the employee and vacation pay for up to 12 months, and only during the time that director was indeed an acting director of the corporation.
  3. Aside from these statutory obligations, a director can be found personally liable in the instance of fraud by the corporation. More than this, a director can be liable if failed to exercise its fiduciary duty, duty of care or duty of loyalty towards the corporation and its stakeholders. For this reason, directors often require corporation’s to purchase D&O liability insurance to protect their interests.


Directors are appointed by and therefore are answerable to the shareholders of a corporation. Recall that shareholders are the owners of a corporation and therefore they appoint directors to actively run the business. For this reason, if the directors are making decisions that the shareholders do not approve, the shareholders may remove them from this position at any time.

Exiting Directors

Removing oneself from the position of director is easy. A director may resign at any time by signing a resignation and submitting this to the corporation. In Ontario, a Form 1 Notice of Change is filed with the Ontario Business Registry to update the corporation’s records to reflect the exit of that director. As a corporation must possess at least one director, another director must be appointed in his or her stead. As a director is merely a high-ranking employee, no one can force another to act in the position of director; the director may resign at any time.


Officers are appointed by the board of directors to manage the day-to-day operations of the corporation in smaller subsets. Common officer titles include Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operating Officer (COO), and Secretary, etc. Each officer holds specific duties and responsibilities corresponding to their role within the organization. Whereas directors oversee the entire organization, an officer’s role is a smaller slice of that corporation. For example, a Chief Marketing Officer’s purview is marketing only; whereas the directors purview is the entire corporation.

The CEO, often regarded as the corporation’s top executive, holds overall responsibility for the company’s performance and strategic direction. The CFO oversees financial matters, including budgeting, financial reporting, and capital management. The COO manages operational activities, ensuring efficiency and effectiveness across various departments. The Secretary is tasked with maintaining corporate records, managing communication with shareholders, and ensuring compliance with corporate governance standards. Other office positions are President, CTO (technology), CMO (marketing), CLO (legal), CHRO (human resources), CCO (compliance) etc.

Duties and Liabilities

Similar to directors, officers are subject to fiduciary duties and owe a duty of care and loyalty to the corporation and its shareholders. Officers can be held personally liable for breaches of their fiduciary duties or violations of law, as with directors.


In the totem pole of a corporation, officers sit at the bottom of executive management. Shareholders elect (and can therefore remove) directors, and directors appoint (and can therefore remove officers).

Exiting Officers

Removing oneself from the position of officer is much the same as with a director. An officer may resign at any time by signing a resignation and submitting this to the corporation followed by a Form 1 Notice of Change. As a corporation must possess at least a President and a Secretary-Treasurer and so to the extent the resigning officer occupied those roles, someone else must be appointed in their stead.

Corporate Changes Generally

For the above reasons, changing the directors or officers of a corporation is fairly easy and without much cost. These changes absolutely do not trigger tax to any party. However changing a corporation’s shareholder is much more complex as this invariably means that a shareholder is divesting of their shares at market value to another which ordinarily triggers tax, unless sheltered. These types of corporate changes are more costly and much more involved than D&O changes.


In summary, while shareholders, directors, and officers are often occupied by the same person(s), the nature of the roles are quite distinct. One must understand the distinctions of each role, which impacts not only their duties, expectations or liabilities but also their ability to exit that company easily.


-Shira Kalfa, BA, JD, Partner and Founder

Shira Kalfa is the founding partner of Kalfa Law Firm. Shira’s practice is focused in corporate-commercial and private M&A law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law.
© Kalfa Law Firm, 2024

The above provides information of a general nature only. This does not constitute legal or accounting advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.

Consult with a business lawyer today. Schedule your free consultation

    Send us a message, but doing so does not mean that we are your lawyers until we have confirmed so in writing. Please do not include any confidential information in your message.

    Close Menu

    Book an Appointment 1-800-631-7923

    Call Us
    Speak with a Lawyer

    Email Us
    [email protected]