Company members

What is a company member?

The Companies Act 2006 (CA 2006) provides for five types of company in England & Wales, and amongst these five there are a multitude of differing structures in the market. However, they all have one element in common: the presence of directors and members (or, at least, one of each).

What is a member of a company?

A member is a person or corporate entity who has:

1. subscribed to a company’s memorandum of association, or
2. subsequently agreed to become a member of a company,

and had their name entered into the company’s Register of Members (also known as the “Register of Shareholders”).

The key evidence of a person’s membership is set out in the company’s Register of Members, which comprises part of a company’s statutory registers (please see here for more information on statutory registers: https://www.ts-p.co.uk/insights/why-are-statutory-registers-so-important/)

Types of company member

Shareholder

The most commonly known type of member is a “shareholder”. A shareholder is a member of a company which has a share capital structure (typically a private limited company or public limited company).

A shareholder will hold at least one share in the company of which they are a member, and in so doing will hold a percentage of that company’s ownership and certain rights attached to that share. The rights attached to a share can vary greatly from company to company, but the default position is (i) a right to vote, (ii) a right to dividends, and (iii) a right to receive cash/assets if the company is wound-up. These rights are typically set out within a company’s Articles of Association.

Guarantor

The second most used type of member is a “guarantor”. A guarantor is a member of a company which is limited by guarantee. The term “guarantor” derives from the fact that the members are agreeing to guarantee a certain amount of the company’s liabilities; in practice, this is normally set at £1.00.

Whilst a guarantor does not hold shares, a guarantor will also hold rights and responsibilities within the company similar to those noted above (which, again, will typically be set out within the company’s Articles of Association).

Member or director?

In many companies, the same person may be both a member and a director. Whilst a single person can occupy both roles, however, it is important to draw a distinction between the two.

In its simplest terms, a member owns (or owns part of) a company, and a director manages the company.

Role of a member

A member will not be involved in the day-to-day running of the company and is not generally required to take part in any “everyday” management or actions on behalf of the company.

The CA 2006 does, however, prescribe that certain actions of a company require the approval of the members.

This approval will occur via votes of the members. Depending on the company’s Articles of Association and preferred practice, such resolutions may take place at a meeting of the members, or via a written resolution.

The members of a company are also responsible for a company’s liabilities if it is unable to pay its debts. In most types of company, however, this liability is limited: for example, in a company limited by shares the liability is the amount unpaid (if any) on the shares that such member holds; and for a company limited by guarantee, the member’s liability will be the amount they guarantee (as noted above, this is often set at £1.00).

Members may also choose to delineate their roles and responsibilities as between themselves via a private contractual agreement (usually a shareholders’ agreement).

Role of a director

In contrast, a director has a fiduciary duty to act in the best interests of the company, and will typically carry out the company’s day-to-day running and operation. This may include, for example, entering into agreements on the behalf of the company or deciding on its business strategy (for a more detailed look into a director’s role, please see: https://www.ts-p.co.uk/insights/an-overview-of-directors-duties-and-liabilities/)

If you are interested in incorporating a company and would like assistance with establishing the roles discussed above, please do get in touch.