Businesses are often investment opportunities for people other than the business owners. Not every interest in a business is the same, however. Some businesses offer interests that entitle the holder to a share of the profits and the right to make business decisions; others do not. The difference between a member and a shareholder depends on the type of business entity.
Membership rights and responsibilities vary depending on the nature of the business entity. Shareholders own interests in a corporation, for example. Not every company is a corporation, however. Partners own and operate partnerships and members own and usually operate limited liability companies. A “member” and a “shareholder” generally denotes some interest or entitlement in a business, but the rights and responsibilities can be very different.
A shareholder is a person or business entity that owns an interest in the corporation. A shareholder does not necessarily participate in the management or operations of the business, however. Corporations act through a board of directors, who may not be shareholders. There are several different types of shares a shareholder can hold. Common stock entitles the holder to vote in board of director elections and to receive a share of corporate profits. In contrast, preferred stock generally entitles the holder to a higher priority claim to corporate distributions than common shareholders do.
Limited liability company (LLC) members are entitled to a share of the company profits, but they also participate in the operation and management of the business. LLC members are similar to partners in a partnership. The membership interest is not based on the number of shares a person owns; instead, a person invests money or property into the business and receives an ownership interest based on the amount of his investment. LLCs may also be manager-managed business. Under a manager-managed LLC, only special members designated as “managers” have a right to the operation and management of the company.
Businesses may offer other types of memberships. A gym membership is an example. The gym itself may be a corporation, but part of its business is to sell gym memberships. A member at the gym only has the right to use the gym equipment. If a gym member buys shares in the gym, the member could become a member and a shareholder.