Q.State the distinction between a 'member' and a 'shareholder' of a company.

In most companies limited by shares, 'member' and 'shareholder' describe the same person, but the two terms rest on different legal tests.

The words 'member' and 'shareholder' are used loosely as synonyms in everyday business language, but the Companies Act, 2013 treats them as resting on different legal foundations.

A shareholder is a person who owns a share in the company's share capital — the test is one of ownership of the security. A member, by Section 2(55), is a person entered in the company's register of members (or, for demat holdings, recorded as a beneficial owner with a depository) — the test is one of registration.

In a company limited by shares the two almost always coincide: an allottee or transferee who owns shares is, once registered, also a member. But they diverge in three situations regularly tested in Gujarat Std 12 Secretarial Practice: (i) a company limited by guarantee, having no share capital, has members but no shareholders at all; (ii) a subscriber to the memorandum becomes a member on incorporation itself, before any shares are actually allotted or paid for, so for a short time he is a member without yet being, in the fullest sense, a shareholder; and (iii) a buyer of shares whose transfer has not yet been registered by the company is a shareholder in substance (having paid for and taken delivery of the shares) but is not yet a member in law, because the register still carries the seller's name.

The further consequence is contractual: under Section 10, only a member is bound by, and can enforce, the memorandum and articles as a statutory contract — a mere unregistered shareholder cannot yet claim that benefit.

A common mistake is treating the two terms as always identical and missing the guarantee-company exception, or assuming that paying for shares and receiving a certificate is enough to make a person a member even before the transfer is registered.