Company Law and Practice · Members and Shareholders

Member and Shareholder: Meaning and Distinction

Updated 11 October 2026 · Fact-checked

A member is a person who is a subscriber to the memorandum, who agrees in writing to become a member and is entered in the register of members, or who is a beneficial owner in a depository's records (Section 2(55)). A shareholder holds shares. In a company limited by shares the two usually overlap, but not always.

Understand Member and Shareholder: Meaning and Distinction

Start with the idea that a company is a separate legal person. It needs owners or participants who stand in a legal relationship with it. The Act calls these people members. Section 2(55) defines who they are.

Section 2(55) gives three categories. First, the subscriber to the memorandum. He is deemed to have agreed to become a member, and on registration of the company he must be entered as a member in the register of members. Second, every other person who agrees in writing to become a member and whose name is entered in the register of members. Third, every person holding shares whose name is entered as a beneficial owner in the records of a depository. The third limb covers dematerialised shares, where the depository's records show who owns the shares.

Now the word share. Section 2(84) says a share is a share in the share capital of a company and includes stock. A shareholder is simply a person who holds a share. In a company limited by shares, a person who holds a share and whose name is entered in the register becomes a member. So in practice the words are used as the same thing.

The distinction matters in other cases. A company limited by guarantee (Section 2(21)) or an unlimited company (Section 2(92)) may have members without share capital. Such members are not shareholders. Also, a person can hold a share without being a member. For example, the holder of a share warrant to bearer, or a person who has bought shares but whose name has not yet been entered in the register. Membership depends on entry in the register (or depository records), not on holding alone.

A stockholder holds stock, which is shares converted into a consolidated fund. The definition of share in Section 2(84) includes stock, so for exam purposes treat a stockholder as a kind of shareholder. Remember also that membership is acquired in different ways: by subscribing to the memorandum, by allotment, by transfer, or by transmission.

Key rules to remember

Member (Section 2(55)): Member = (i) subscriber to memorandum, entered in register on registration + (ii) person who agrees in writing and is entered in register + (iii) holder of shares entered as beneficial owner in depository records; Learn the three limbs in order. Entry in the register or depository record is the common thread.
Share (Section 2(84)): Share = a share in the share capital of a company, and includes stock; Stock is covered by the definition.
Member vs shareholder: Every shareholder (entered in register) is a member; not every member is a shareholder; Members of guarantee and unlimited companies may hold no shares.
Modes of becoming a member: Subscription to memorandum | Allotment | Transfer | Transmission | Agreement in writing and entry in register; Subscribers become members on registration. Others need entry in the register, or depository record for dematerialised shares.
Company limited by shares (Section 2(22)): Liability of members = amount, if any, unpaid on their shares; Useful to link membership with liability.

How to solve Member and Shareholder: Meaning and Distinction questions

Use this method for any question on who is a member, or how member and shareholder differ.

1Identify what is asked: the definition, the distinction, or whether a given person is a member.
2Quote Section 2(55) and list its three limbs in your own words.
3Quote Section 2(84) for the meaning of share, noting that it includes stock.
4Apply the facts: check whether the person subscribed the memorandum, agreed in writing and was entered in the register, or is a beneficial owner in a depository's records.
5Bring in the distinction: companies limited by guarantee or unlimited companies may have members without shares; a holder not yet entered in the register is not yet a member.
6If asked about modes, cover subscription, allotment, transfer and transmission, with the point that entry in the register completes membership.
7Write a clear conclusion that names the person as a member or not, and cite the section.

Quickest way: Three-limb check with the register test

When to use it: Use for short case-style questions where you must decide quickly whether someone is a member.

Ask: did the person sign the memorandum as subscriber? If yes, a member on registration.
Ask: did the person agree in writing and is the name in the register of members? If yes, a member.
Ask: are the shares in demat form with the name as beneficial owner in the depository records? If yes, a member.
If none applies, say the person is not yet a member, and state the reason in one line.
Close with the section number: Section 2(55).

Common mistakes in Member and Shareholder: Meaning and Distinction

Saying member and shareholder always mean the same thing.
In companies limited by shares the two overlap, so notes often use them together.
Fix: State that they overlap in share companies but differ in guarantee and unlimited companies, where members may hold no shares.
Treating a person who has bought shares as a member immediately.
Students focus on holding and ignore the entry requirement.
Fix: Say that membership needs the name entered in the register of members, or as beneficial owner in depository records.
Forgetting the third limb of Section 2(55) on depository records.
Older notes list only two limbs.
Fix: Always write all three limbs, including the beneficial owner entered in depository records.
Saying a subscriber must agree in writing separately and wait for the register entry before being a member.
Students mix up limb (i) and limb (ii).
Fix: A subscriber is deemed to have agreed to become a member and, on registration, is entered in the register. Limb (ii) applies to every other person.
Quoting the wrong section for the definition of share.
Students confuse Section 2(84) with other clauses or with Section 43.
Fix: Remember: member is Section 2(55); share is Section 2(84).
Writing no conclusion on a fact-based question.
Students describe the law and stop.
Fix: End with a clear line, such as 'Hence X is a member of the company under Section 2(55)(ii).'

Worked examples

Example 1

Distinguish between a member and a shareholder of a company.

Show the solution

Provision: Section 2(55) defines a member as a subscriber to the memorandum, any other person who agrees in writing to become a member and whose name is entered in the register of members, and every person holding shares whose name is entered as a beneficial owner in the records of a depository.
Section 2(84) defines a share as a share in the share capital of a company, and it includes stock. A shareholder is a person who holds such a share.
Analysis: In a company limited by shares, a holder whose name is entered in the register is a member, so the terms overlap.
The difference appears in other cases. A company limited by guarantee or an unlimited company can have members who hold no shares. Also, a person who holds a share but whose name is not yet entered in the register is not yet a member.
Conclusion: Member is the wider legal status based on Section 2(55) and entry in the register; shareholder describes holding a share.

Answer: Every shareholder whose name is entered in the register or depository records is a member, but not every member is a shareholder. Members of guarantee or unlimited companies may have no shares, and a holder not yet registered is not yet a member.

Example 2

Anita, Rohan and Meera sign the memorandum of Sundaram Foods Limited as subscribers. Later, Karthik applies in writing and is allotted shares, and his name is entered in the register of members. Ishaan buys demat shares, and his name appears as beneficial owner in the depository's records. Decide who are members.

Show the solution

Provision: Section 2(55) has three limbs: subscribers to the memorandum; other persons who agree in writing and are entered in the register; and holders of shares entered as beneficial owner in depository records.
Anita, Rohan and Meera are subscribers. They are deemed to have agreed to become members and, on registration, must be entered in the register. They fall under limb (i).
Karthik agreed in writing and his name is entered in the register of members. He falls under limb (ii).
Ishaan holds shares and is entered as beneficial owner in the depository's records. He falls under limb (iii).
Conclusion: All five are members of the company.

Answer: Anita, Rohan and Meera are members under Section 2(55)(i), Karthik under Section 2(55)(ii) and Ishaan under Section 2(55)(iii). All five are members.

Exam tips

Write all three limbs of Section 2(55) in every answer. Examiners look for completeness.
For a 'distinguish' question, give at least three clear points: legal basis, overlap in share companies and members without shares.
Cite Section 2(55) for member and Section 2(84) for share. This earns marks for provision.
On fact-based questions, apply each limb to each person and then give a conclusion.
When listing modes of becoming a member, link each mode back to the register entry or depository record.

Practice questions from Members and Shareholders

Member and Shareholder: Meaning and Distinction: frequently asked questions

Who is a member under Section 2(55) of the Companies Act, 2013?

A member is a subscriber to the memorandum, any other person who agrees in writing to become a member and is entered in the register of members, or any person holding shares whose name is entered as a beneficial owner in a depository's records. Each limb is separate.

Is every member a shareholder?

No. In a company limited by shares the member usually holds shares. In a company limited by guarantee or an unlimited company, members may hold no shares, so they are members but not shareholders.

Can a person hold shares and still not be a member?

Yes, until the name is entered in the register of members or the depository's records. Holding alone does not complete membership. Entry is the test.

How does a person become a member of a company?

A person becomes a member by subscribing to the memorandum, by allotment of shares, by transfer of shares, or by transmission, for example on the death of a member. In each case the entry in the register, or depository record for demat shares, is required.