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Difference between Members and Shareholders
The terms 'member' and 'shareholder' have been used interchangeably in the Companies Act. The word 'shareholder' is used in relation to a company having a share capital and there can be no membership except through the medium of shareholding. A holder of shares becomes a member only when his name is entered on the register of members. But the term 'member' is wider in scope and may be used in relation to all types of company. A person may become a member of a company without holding any shares. Companies limited by guarantee or unlimited companies having no share capital can have no shareholders but do have members.
The following are the points of distinction between members and shareholders :
- A holder of a share warrant is a shareholder but not a member as his name is struck off the register of members immediately after the issue of such share warrant.
- Every registered shareholder is a member but every registered member may not be a shareholder because the company may or may not have share capital.
- The transferor or the deceased person is a member so long as his name is on the register of members whereas he cannot be termed as shareholder.
- Similarly, a shareholder by transfer is not a member until his name is entered in the company's register of members.
- A person who mispresents himself to be a member is estopped from denying his position subsequently. He is said to have become a member by estoppel.
- A person may become a member by an order or decree of a court.
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FAQs on Difference b/w Members & Shareholders - Company Law - Company Law - B Com
| 1. What is the difference between members and shareholders in company law? |  |
Ans. In company law, the terms "members" and "shareholders" are often used interchangeably, but there is a subtle difference between the two. A member refers to any person who has agreed to become a member of the company and whose name is entered in the company's register of members. On the other hand, a shareholder is a specific type of member who holds shares in the company, representing ownership in the company. While all shareholders are members, not all members may be shareholders if they do not hold any shares.
| 2. What are the rights and responsibilities of members and shareholders in a company? | |
Ans. Both members and shareholders have certain rights and responsibilities in a company. As members, they have the right to participate in general meetings, vote on important matters, receive financial information, and inspect company records. Additionally, members have the responsibility to pay any amounts due on their shares and comply with the company's rules and regulations. Shareholders, being a specific type of member, also have additional rights like receiving dividends, the right to transfer their shares, and the right to receive a proportionate share in the company's assets upon liquidation.
| 3. Can a person be a member of a company without being a shareholder? | |
Ans. Yes, it is possible for a person to be a member of a company without being a shareholder. In some cases, individuals may become members of a company by contributing their skills, services, or expertise rather than investing capital and holding shares. These members are commonly known as non-equity members or non-shareholding members. They still have certain rights and responsibilities as members, but they do not hold any shares and therefore do not have the rights associated with shareholding.
| 4. Can a shareholder be a member of multiple companies? | |
Ans. Yes, a shareholder can be a member of multiple companies. There are no restrictions on a person holding shares in multiple companies simultaneously. Each company's shareholding is treated separately, and the rights and responsibilities associated with being a shareholder apply to each company individually. However, it is important for shareholders to carefully manage their investments and ensure compliance with any legal or regulatory requirements related to multiple shareholdings.
| 5. What happens if a member or shareholder fails to fulfill their obligations in a company? | |
Ans. If a member or shareholder fails to fulfill their obligations in a company, it can lead to various consequences. For example, if a member fails to pay the amounts due on their shares, the company may have the right to forfeit their shares, meaning the member loses their ownership rights. In cases of non-compliance with the company's rules or regulations, the company may take disciplinary actions, such as imposing fines or even removing the member from the register of members. It is essential for members and shareholders to understand and fulfill their obligations to maintain their rights and standing within the company.
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