Difference between Member vs. Shareholder | Procedure for allotment / forfeiture of Shares

While the terms "member" and "shareholder" are often used interchangeably in casual conversation, they have distinct legal meanings under the Companies Act, 2013.

1. Member vs. Shareholder

The primary difference lies in the Register of Members. A person can be a shareholder without being a member, and vice versa.

Basis	Member	Shareholder
Definition	A person whose name is entered in the Register of Members (Section 2(55)).	A person who owns shares in a company.
Signatory	Every subscriber to the MoA becomes a member automatically upon incorporation.	A subscriber is a shareholder only once shares are actually allotted.
Companies without Shares	A company limited by guarantee without share capital has members, but no shareholders.	Cannot exist in companies without share capital.
Transfer of Shares	A person remains a member until the transfer is registered and their name is removed.	Becomes a shareholder as soon as they buy shares (even if the transfer isn't registered yet).
Share Warrants	The bearer of a share warrant is a shareholder but not a member (until they surrender the warrant).	The bearer of a share warrant is a shareholder.

2. Procedure for Issuance and Allotment

Allotment is the act of "appropriating" a certain number of shares to an applicant.

The Procedural Steps:

1. Issue of Prospectus/Offer: The company invites the public or a specific group to subscribe to shares.

2. Application: Interested investors submit a written application along with the application money (which must be at least 5% of the nominal value).

3. Board Resolution: A meeting of the Board of Directors is held to pass a resolution for the allotment of shares.

4. Letter of Allotment: The company sends an "Allotment Letter" to the applicants. This creates a binding contract.

5. Filing Return of Allotment: Within 30 days of allotment, the company must file Form PAS-3 with the Registrar of Companies (ROC).

6. Issue of Share Certificates: The company must issue physical or demat share certificates within 2 months of allotment.

3. Procedure for Forfeiture of Shares

Forfeiture is the "penal" cancellation of shares due to the non-payment of "calls" (unpaid installments of the share price).

The Procedural Steps:

1. Authority in Articles: The company can only forfeit shares if its Articles of Association (AoA) specifically grant this power.

2. Default by Shareholder: The shareholder fails to pay the call money within the specified time.

3. Notice of Default: The company must serve a notice to the defaulting member.

   • It must give at least 14 days' notice from the date of service.

   • It must state that if payment is not made, the shares will be liable to forfeiture.

4. Board Resolution: If the member still doesn't pay, the Board passes a formal Resolution of Forfeiture.

5. Notice of Forfeiture: The company informs the member that their shares have been forfeited and their name is removed from the Register of Members.

6. Public Notice: If the company is listed, it must notify the Stock Exchange.