The terms ‘shareholders’ and ‘members’ are synonymous with one another in companies limited by shares, but they don’t have the same meaning in every situation. Whilst all shareholders are classed as members of a company, members are not always shareholders. It’s important to understand the distinction in certain contexts, which we explain below.
Shareholders are always members
Shareholders are people who own shares in a company limited by shares. When a person takes shares, whether that’s during or after the company formation process, they are agreeing to become a member of the company. Their name is then entered in the company’s register of members.
Typically, shareholders invest capital in a company in exchange for shares. In most cases, their ownership stake entitles them to a share of any profits and the right to participate in important corporate decisions.
The nominal value of their shares (the minimum amount they agree to pay) is the limit of their liability for debts of the company, hence the company being ‘limited by shares’.
When referring to the owners of shares, people usually call them ‘shareholders’ because it is the term that most people are familiar with. In UK company law, however, legislation and regulations instead use the term ‘member’ for any person who has legal rights in a company through the ownership of shares.
This is not something that you need to worry about or are likely to encounter on a day-to-day basis, but it is worthwhile understanding the different terminology and meanings.
Members are not always shareholders
Whilst ‘member’ is the official term for anyone who is a shareholder in a company limited by shares, it is also the official term for:
- a guarantor in a company limited by guarantee
- a partner in a limited liability partnership (LLP)
So, these people are members, but they are not shareholders. The reason is that there are no shares or shareholders in companies limited by guarantee or limited liability partnerships.
The members of a company limited by guarantee
A guarantor is a person who agrees to become a member of a limited by guarantee company and have their name entered in the register of members. However, unlike shareholders, they do not ‘own’ a stake in the company or have shares that they can sell.
Rather, the role of these members is to control the company and agree to contribute a ‘guaranteed amount’ to the assets of the company if it becomes insolvent. This financial guarantee is the limit of their liability for company debts.
Since companies limited by guarantee are almost always set up for charitable or not-for-profit purposes, members are usually not entitled to receive any profit that the company generates. Surplus income is instead used to run the company and fund its intended purpose, whether that is supporting a charitable cause or running a sports club or community centre.
It is not unusual for limited by guarantee companies to have different ‘classes’ of members with different rights, in the same way that limited by shares companies can have different classes of shareholders. For example, some members may have voting rights, whilst others may be non-voting but have access to club facilities or other membership perks.
The members of a limited liability partnership
The partners in a limited liability partnership (LLP) are officially known as LLP members. They agree to join the partnership and carry on a lawful business with a view to making a profit. Their names are then entered in the LLP register of members.
LLP members own and run the partnership together, but they do not hold ‘shares’ in the business, because there are no shares. Instead, they agree between themselves on each member’s level of ownership and control.
Information relating to their rights, entitlements, and responsibilities are usually set out within a private LLP agreement. Key details include their individual investment in the business, how profits are to be divided, how much voting power each member has over corporate decisions, and the limit of their financial liability for the debts of the LLP.
Are company subscribers always members?
All company subscribers are classed as members. The term ‘subscriber’ refers to any person who becomes a member of a company limited by shares or limited by guarantee at the time of its incorporation – the very first members of the company.
They are called subscribers simply because they ‘subscribe’ to the memorandum of association during the incorporation process. Therefore, only these founding members are referred to as subscribers.
To all intents and purposes, however, they are the same as any other members who may join the company at a later date, subject to any variation of rights or responsibilities set out in the articles of association or within a shareholders’ agreement.
Where to record information about members
Companies and limited liability partnerships must provide Companies House (the UK registrar of companies) with details of each of their members. They must also keep a register of members available for public inspection at their registered office address or SAIL address (single alternative inspection location).
The register of members for a company limited by shares or guarantee must include the following details of every member:
- Full name
- Service address
- The date on which they became a member of the company
- The date on which they ceased to be a member (where applicable)
- Details of shareholdings or guaranteed amount
For limited liability partnerships, the LLP register of members must include the following details of every LLP member:
- Full name
- Service address
- Country or state (or part of the UK) where they usually reside
- Date of birth
- Whether the person is a designated member
LLPs must also keep an LLP register of members’ usual residential addresses, containing the usual home address of each individual member of the partnership. This register is not available for public inspection.
When members are also people with significant control
The details of any member who is a person with significant control (PSC) in the company or LLP must also be entered in the PSC register. Shareholders, guarantors, and LLP members are classed as PSCs if they hold a certain degree of influence or control over the company or LLP in which they are members.
The following details of every PSC must be recorded in the PSC register of the company or LLP:
- Full name
- Date of birth
- Country, state, or part of the UK where the PSC usually lives
- Service address
- Usual residential address
- The date they became a PSC in the company or LLP
- Nature of control over the company or LLP
Like the register of members, companies and LLPs must make their register of people with significant control available for public inspection at their registered office address or SAIL address.
Thanks for reading
We hope that this post has helped you to understand the meaning of the terms ‘shareholder’ and ‘member’, and that members are not always shareholders.
If you are unsure about anything we have discussed, or would like to speak to us about setting up a company, please get in touch by commenting below or contacting our company formation team.