When we talk about a company, the terms shareholders and members are commonly used as synonyms, as one can become a member of the company, except by way of holding shares. In this way, a member is a shareholder and a shareholder is a member. The statement is true but not completely, as it is subject to certain exceptions, i.e. a person can become the holder of shares through transfer, but is not a member, until the transfer is entered in the register of members.
In the same way, the transferor of shares lacks shareholding but continues as a member, until entries are made in the company’s books regarding the transfer. Likewise, there are a few more points of difference between member and shareholder which are elaborated in the article in a detailed manner.
Content: Member Vs Shareholder
|Basis for Comparison||Member||Shareholder|
|Meaning||A person whose name is entered in the register of members of a company, is the registered member of the company.||The person who owns the shares of a company is known as shareholder.|
|Defined in||Section 2 (27)||Not defined|
|Share Warrant||The holder of a share warrant is not a member.||The holder of a share warrant is a shareholder.|
|Company||Every company must have a minimum number of members.||The company limited by shares can have shareholders.|
|Memorandum||The person who signs the memorandum of association with the company becomes a member.||After signing the memorandum, a person can be a shareholder only when the shares are allotted to him.|
Definition of Member
A person whose name is entered in the register of members of a company becomes a member of that company. The register includes every single detail about the member like name, address, occupation, date of becoming a member, etc. It also includes every person who holds company’s shares and whose name is entered as the beneficial owners in depository records.
The liabilities of members are limited to the amount of shares held by them in the case of a company having share capital while in the case of a company limited by guarantee the liability of members is limited to the amount of guarantee given by them. But, in the case of an unlimited company the members have to contribute from his personal assets to pay the debts.
The members cannot take part in the management of the company, i.e. the management of the company is looked after by the Board of Directors. Although the right to appoint and remove the directors is in the hands of members.
How to become the member of a company
- If a person subscribes the memorandum of association of a company, he becomes a member by signing it.
- If a person becomes the beneficial owner of shares whose name is registered in the record of the depository, then also he becomes a member.
- If a person gets shares by way of transfer and the transfer is recorded by the company, along with the entry of the name of the transferee in the register of members.
- If a person gets shares by way of transmission and the transmission is recorded by the company along with the entry of the name in the register of members.
- If a person agrees to take the qualification shares of the company and pay for it then also he becomes a member of the company.
Definition of Shareholder
An individual who owns the share of a public or a private company is known as a ‘Shareholder.’ A subscriber of shares is not regarded as the shareholder until the shares are actually allotted to him.
The shareholders are the owners of the company, i.e. to the extent of the share capital held by them. The legal representative of the deceased member, is a shareholder, not the member, until and unless his name is recorded in the register of members of the company. Hence, it can be said that every shareholder is a member but every member, is not a shareholder.
The following are the rights of a shareholder:
- Right to transfer or sell their shares.
- Right to get the dividend.
- Right to attend the general meeting and vote.
- Right to take copies of Memorandum and Articles of Association.
- Right to receive the copy of the statutory report.
Key Differences Between Members and Shareholders
The following are the differences between members and shareholders:
- A member is a person who subscribed the memorandum of the company. A shareholder is a person who owns the shares of the company.
- The term member is defined under section 2 (27) of the Indian Companies Act, 1956. Conversely, the term shareholder is not defined in the Indian Companies Act, 1956.
- The bearer of a share warrant is not a member, but the bearer of a share warrant can be a shareholder.
- All shareholders whose name are entered in the register of members are the members. On the other hand, all members may not be the shareholders.
- In the case of a public company, there must be a minimum of 7 members. There is no such cap on the maximum number of members. Similarly, a private company can have a minimum of 2 and maximum of 50 members. As opposed to shareholders, there is no minimum or maximum limit, in the case of a public company.
Members and Shareholders both are important persons of any company, whether it is public or a private limited company. We explained many differences between them, which makes it clear that how these two terms differentiate each other. However, a member can be a shareholder and in the same way, a shareholder can also be a member subject to certain conditions has to be fulfilled for the same.