Member vs Shareholder of a Company - Differences

Difference between Member and Shareholder of a Company

For a Company, there is a very minor difference between Member(s) and Shareholder(s), but that difference which applies to only some of the situations is very important from the point of view of that member/shareholder.


A. Who is a Member?

A member is one of the Company’s owners whose name has been entered on the register of members of that Company.

The subscribers of the memorandum of association of a company are the deemed members of the company and on the registration of the same, their names are required to be entered register of members.

Every person holding equity share capital of company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company.

B. Who is a shareholder?

A shareholder is a person who buys and holds shares in a company having a share capital. They become a member once their name is entered on the register of members. 

Many companies limited by guarantee do not have a share capital, and consequently, their members are not shareholders.

C. Rights of members and shareholders?

The rights of members are stated in the Companies Act and in the company’s memorandum and articles of association and those rights are not available to the Shareholder.

e.g. Right to a dividend:- Only Members of the Company are eligible for a dividend i.e. the money that a company pays to its shareholders from its profits. Generally the Company fixes a record date before distribution of dividend to determine the members who are eligible for the dividend, and only the name of the persons whose name appears in the Register of Members and in the Statement of Beneficial Owners as provided by the Depository(ies) as on the Record Date are considered as Member.

And therefore any Person who has bought the shares from an existing member of a Company but such share transfer is under process for registration and his name is not yet entered in the Register of Members, then he will not be considered as Member neither he will be eligible for Dividends.



Illustrations:

(1) A person can be a Member and Shareholder of the Company at the same time:
e.g. Mr. X has 30 shares in FT Limited, his name appears in the Register of Members on 11th August, 2012 and he is alive and haven’t sold his shares to anybody.

(2) A person can be a Member but not a Shareholder of the Company at the same time:
e.g. Mr. X has 30 shares in FT Limited, his name appears in the Register of Members on 11th August, 2012 and he is alive but he has sold his shares to Mr. Y on that day.

(3) A person can be a Shareholder but not a Member of the Company at the same time.
e.g. Mr. Y has 30 shares in FT Limited bought from Mr. X on 11th August, 2012, he has forwarded the Share Transfer Documents to the Company for registration of his name in the Register of members.