Many people ask us about the difference between member and shareholder. They are similar but distinct, and it is important to know how they differ.
Difference between member and shareholder
The term “member” has different meanings in different contexts. In a non-profit company, a member is someone who has specified rights in respect of – and holds membership in – that non-profit company. They have a similar role and responsibilities as shareholders of profit companies. However, they do not receive dividends or any payment outside of the services they actually provide to the non-profit company.
More commonly, the term “member” is used in connection with close corporations. In a close corporation, a member is a person who is designated as a member in the founding statement of the corporation. They must also be qualified for membership of the corporation. But unlike companies, members of a close corporation have to be natural persons or trusts.
Shareholders hold or own the shares issued by their company. A shareholder’s name also appears in the securities register of the company. Shareholders do have some power in managing the company, but not day to day. Instead, shareholders vote on specific matters at annual general meetings. Different from close corporations, shareholders of companies can be both natural persons and other companies or legal entities.
Members, shareholders and the running of their businesses
Members of close corporations have a very similar kind of role and responsibilities as shareholders of companies. The relationship between members is governed by an association agreement. The relationship between shareholders is governed by a shareholders agreement. Members of close corporations both own the business, and govern the day to day running of it. Companies, however, have split these two roles between shareholders and directors.
Under the new Companies Act, close corporations cannot be registered anymore. We believe that the new Act also provides better protections to shareholders than the old Close Corporations Act does to members. It is also very easy to convert from a close corporation to a company.