Member vs Shareholder of a Company: Difference & Examples

There is a very minor difference between the terms "Member" and "Shareholder" in case of a company.

But, that minor difference, which is only in some cases, is of vital importance from the point of view of the concerned member or shareholder.

Who is a shareholder?

A shareholder is a person who buys and holds shares in a company having a share capital.
He becomes a member once his name is officially entered in certain statutory registers or records.

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

Who is a Member?

In case of shareholders holding shares in physical share certificates:—

A member is one of the owners of a company, whose name has been entered in the register of members of that company.

Register of members is a statutory register maintained by a company wherein the names of the shareholders who are holding shares in physical form are officially entered into.

In case of shareholders holding shares in demat account:—

Every person holding equity shares in electronic form 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.

The persons who want to hold the shares in electronic form (i.e. demat form) will have to open demat accounts with depository participants who are registered with depositories. Every depository maintains complete records of the shareholding of such persons in their demat account. Such records are shared with the company and its registrar & share transfer agent (RTA).

Subscribers of the memorandum of association:—

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

Rights of members vs Rights of shareholders

The rights of a member are stated in the Companies Act and in the company’s memorandum and articles of association and those rights are not available to a shareholder, if you take the strict definition of a 'member'.

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 dividends to determine the members who are eligible for the dividend, and only the name of the person whose name appears in the Register of Members and in the Statement of Beneficial Owners as provided by the Depositories as on the Record Date are considered as members.

Therefore, if 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 a member neither he will be eligible for any dividends on shares.

Examples

1. Being a member and shareholder at the same time:

E.g. Ms. Lili has 100 shares in XYZ Limited, her name appears in the Register of Members as on 10th January, 2020. She is alive and hasn’t sold her shares to anybody. Here, she is both a member and shareholder of the company.

2. Being a member but not a shareholder at the same time:

E.g. Mr. Hari has 200 shares in ABC Limited, his name appears in the Register of Members as on 11th January, 2020. He is alive but he has sold his shares to Mr. Nath on the same day.

Mr. Hari is the member of those shares as his name still appears in the Register of Members and Mr. Nath is the shareholder as he has bought those shares.

3. Being a shareholder but not a member at the same time:

E.g. Ms. Mahi has 300 shares in KLM Limited, which she bought from Ms. Rani on 12th January, 2020. She has forwarded the Securities Transfer Form along with other documents to the company for registration of her name in the Register of Members.

Here, Ms. Mahi is the shareholder of those shares but not a member until the time her name is entered in the Register of Members of the company.