Member and Shareholder — The Distinction

In everyday commercial language the words 'member' and 'shareholder' are used interchangeably, and in the vast majority of companies — those limited by shares — every shareholder is indeed a member and every member is indeed a shareholder. But the two terms are not perfectly synonymous under the Companies Act, 2013, and the Gujarat Std 12 Secretarial Practice syllabus expects students to be able to separate the two concepts.

A 'shareholder' is, strictly speaking, a person who owns a share in the share capital of the company — the term describes ownership of the security itself. A 'member', by contrast, is defined by Section 2(55) in terms of registration in the register of members. The distinction becomes visible in a few real situations:

• A company limited by guarantee, having no share capital, has members but no shareholders at all — there is nothing called a 'share' to hold.
• A person who has purchased shares on the stock market but whose transfer has not yet been registered by the company is, in a practical sense, already an owner but not yet a member in the legal sense, because the register still shows the transferor's name.
• A legal representative of a deceased member, before transmission is completed and the name is actually entered in the register, holds an equitable interest in the shares but is not yet a member.
• Conversely, a subscriber to the memorandum becomes a member on incorporation itself, even before receiving a share certificate or paying for the shares (subject to the liability to pay when called upon).