The words ‘shareholders’ and ‘members’ of a limited company are often used interchangeably, and in many cases that’s fine. Both terms refer to individuals or entities with a financial and/or legal interest in the company. But whether they are called ‘shareholders’ or ‘members’ often depends on the context in which they are being discussed. This article explains the reasons for this by looking at the exact meanings of both terms.
Shareholders
Shareholders are individuals or entities investing in a company by buying shares. In return they are usually entitled to a share of the company’s profits and may have the right to vote on matters such as electing directors and other corporate decisions. Shareholders do not necessarily have any day-to-day involvement in the management of the company. They are often involved with it only for investment purposes.
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Nearly all shareholders are members, but not all members are necessarily shareholders. Shareholders have an investment interest in the company, while members have a legal interest in the company’s management and operation.
Members
Members of a limited company are individuals or entities who have subscribed to the company’s memorandum of association at incorporation or who have later agreed to become a member of the company. Members may or may not be shareholders in the company.
The term ‘member’ is typically used in the context of their contribution to the management of the company by appointing and removing directors, voting on changes to the company’s articles of association and other corporate decisions. These actions are not related to shares or shareholdership.
Members are more often referred to as ‘shareholders’ in the context of their shares and investment in the company, for example when discussing the rights attached to their shares or a share reorganisation.
Nearly all shareholders are members, but not all members are necessarily shareholders. Shareholders have an investment interest in the company, while members have a legal interest in the company’s management and operation.
All members and shareholders are recorded in the company’s register of members. In a company limited by shares, the register of members and register of shareholders are synonymous.
Shareholders in a private company limited by shares (the most common type of company in the UK, with Ltd or Limited after its name) are generally automatically members. One exception would be where a nominee shareholder is a member by virtue of being on the register of members, but the beneficial owner of the shares is not a member.
Shareholders in a company limited by shares are generally automatically members.
Members vs. shareholders in different types of company
The above is about companies limited by shares.
In a company limited by guarantee (see below), members have influence over how the company is run in the same way, but they cannot be shareholders because this type of company does not have shares.
Let’s look at how the terms ‘member’ and ‘shareholder’ are used when talking about the main types of company in the UK.
Company limited by guarantee: generally a not-for-profit organisation that is run by its members. It does not have share capital and its members are only liable for a predetermined amount of money if the company is wound up. Companies limited by guarantee cannot have shareholders since there are no shares, only members.
Companies limited by guarantee cannot have shareholders, only members.
Public limited company (PLC): a public limited company has limited liability and can have an unlimited number of members who are also shareholders.
A PLC has limited liability and can have an unlimited number of members who are also shareholders.
Limited liability partnership (LLP): an LLP is a type of partnership where the partners have limited liability: their personal assets are protected if the business runs into financial difficulties. An LLP can have members, who are also known as partners. There are no shares or shareholders in LLPs, only members. LLP members can be limited companies with their own shareholders. But those shareholders are not shareholders of the LLP.
There are no shares or shareholders in LLPs, only members. But LLP members can be limited companies with their own shareholders.
Community interest company (CIC): a CIC is a special type of limited company designed for social enterprises. It is run for the benefit of the community, and profits are reinvested into the business. A CIC can have members and directors. As with other companies, ultimate control of the company lies with the members. The actual company type of CICs can be: limited by shares, limited by guarantee, or charitable incorporated organisation (CIO), among others. Whether or not a CIC has shareholders depends in its company type.
Whether or not a CIC has shareholders depends on its company type.
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