Q."Every shareholder is a member, but every member need not be a shareholder." Explain this statement.

This classic statement captures a real asymmetry between the two categories that runs through the whole law of membership of a company.

The statement "every shareholder is a member, but every member need not be a shareholder" is a standard way of expressing the asymmetry between the two terms, and it rests on two genuine legal situations.

First, a company limited by guarantee, having no share capital at all, has members — persons who have agreed, in the memorandum, to contribute a stated amount if the company is wound up — but there is no 'share' for any of them to hold. Such members can never be shareholders, because the very concept of a share does not exist in that company. Every one of them is, however, still a member of the company within Section 2(55).

Second, even in a company limited by shares, a subscriber to the memorandum is deemed a member from the date of incorporation itself, under Section 2(55)(i), and must be entered in the register of members immediately — before the company has actually allotted him any shares or he has paid for them. For that brief interval, he is a member without having yet received or paid for a single share, so calling him a 'shareholder' in the fullest sense is, strictly, premature.

By contrast, once a person genuinely owns a share (has been allotted shares, or has taken a transfer that is duly registered), he is, without exception, also a member — which is why the first half of the statement, "every shareholder is a member", holds without qualification in a company having share capital.

Students often argue only one half of the statement (usually the guarantee-company example) and forget the subscriber-to-memorandum example, or wrongly claim the reverse statement ('every member is a shareholder, but not every shareholder is a member') is what the textbook intends.