Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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If you’re setting up a business (or restructuring one you’ve already built), it’s normal to get tripped up by the terminology. “Members” and “shareholders” often get used interchangeably - but in New Zealand, the legal meaning can depend heavily on the type of organisation you’re running.
Understanding the difference between members vs shareholders matters because it affects:
- who owns (or controls) the organisation
- how decisions are made
- how profits (if any) can be distributed
- who has legal rights to vote, inspect records, or enforce governance rules
- what happens when someone joins, exits, or disputes arise
Below, we’ll break down what “members” and “shareholders” mean in practice, when the terms overlap, and what legal documents you should have in place to protect your business from day one. (This article is general information only and not legal advice.)
What’s The Difference Between Members And Shareholders In NZ?
At a high level, the simplest way to think about the members vs shareholders distinction is this:
- Shareholders own shares in a company and have rights tied to those shares (like voting and dividends).
- Members are people (or entities) who belong to an organisation and have rights set by that organisation’s governing rules (like a constitution or rules), which may or may not involve ownership.
The key point is that “member” is a broader concept. In some structures, shareholders may also be described informally as members, but in many others (especially not-for-profits) you can have members without any shares at all.
In practice, the meaning depends on the legal structure you’ve chosen.
When “Member” And “Shareholder” Are The Same
In a typical New Zealand company, the law and most documents generally talk about shareholders (under the Companies Act 1993). You’ll sometimes still hear founders and advisers refer to “members” in a general sense to mean the owners listed on the share register - but it’s usually clearer (and more accurate) to call them shareholders.
So, in an everyday small business setting, you might hear:
- “We have two members” (meaning two shareholders), and
- “We have a member vote” (meaning shareholders are voting).
That said, once you move outside a standard company setup (for example, incorporated societies and other member-based organisations), the distinction becomes much sharper.
When “Member” Is Not A Shareholder
Many not-for-profit or membership-style organisations have “members” but no shareholding structure - meaning:
- members may vote on governance issues
- members may elect a committee or board
- members generally don’t “own” the organisation in the same way a shareholder owns a company
- members usually can’t receive profit distributions (depending on structure and rules)
This is why it’s important not to assume “members” always means “owners”. For your business, the legal rules come from the structure you choose and the documents you put in place.
How It Works In A Company: Shareholders, Members, Directors And Control
For many NZ small businesses, the structure is a company. In that case, understanding members vs shareholders often leads into a bigger question: “Who controls what?”
In a company, you typically have:
- Shareholders: they own shares and have key rights (usually voting on major decisions).
- Directors: they manage the company and make day-to-day (and strategic) decisions.
This split is intentional. Shareholders are the owners, but directors run the business.
What Rights Do Shareholders Usually Have?
Shareholder rights can depend on the share class and the company’s governing documents, but commonly include:
- voting on major decisions (like appointing/removing directors)
- approving major structural changes
- receiving dividends (if declared)
- rights to information (within limits)
If you’ve got more than one shareholder (or you plan to bring in investors later), getting the rules clear early can save a lot of stress. This is exactly where a Shareholders Agreement becomes a key part of your legal foundation.
What Rights Do “Members” Have In A Company?
In a standard company context, it’s usually best to think in terms of shareholders and directors. If the word “members” is used in or around a company, it’s commonly being used informally to refer to shareholders on the share register (or people entitled to vote). The exact position, though, will depend on what the Companies Act 1993 says and what your company’s constitution and shareholder documents provide.
This term can also come up in practice when dealing with:
- company records and reporting
- company resolutions
- company meetings and voting
So if you’re running a company and someone says “members”, it’s usually worth checking whether they actually mean shareholders (especially when dealing with constitutions, share classes, or investor documents).
Where Your Company Constitution Fits In
A company’s internal rules can be partly set by the Companies Act 1993 and partly set by your own documents. One of the most important documents is the Company Constitution.
Your constitution can cover things like:
- how shareholder votes work
- how directors are appointed and removed
- what restrictions apply to share transfers
- what happens if a shareholder wants to exit or is in breach
Without clear rules, you can end up in messy “he said/she said” disputes where everyone thinks they’re entitled to make decisions - and nobody has a clean process to resolve it.
What About Organisations With Members But No Shareholders?
Not every organisation is built to distribute profits to owners. If your goal is a community purpose, industry group, club-style model, or other member-led setup, you might be dealing with a structure where members exist without shareholders.
In these kinds of organisations, “membership” is usually tied to:
- a right to participate in governance
- a commitment to the organisation’s rules and purpose
- sometimes, membership fees or eligibility requirements
Depending on the structure, your organisation may be governed by legislation designed for member-based entities (for example, incorporated societies under the Incorporated Societies Act 2022), as well as its own constitution/rules.
Even if you’re not set up to distribute profits, you still need to manage legal risk properly - disputes, governance issues, and compliance problems can still derail what you’re building.
Why The Member Rulebook Matters
Where shareholders rely on a share register and share rights, member-based organisations rely heavily on their governing rules (often a constitution or similar document). This document usually answers practical questions like:
- How do people become members (and stop being members)?
- How are decisions made and recorded?
- What voting thresholds apply?
- Who sits on the committee/board and what powers do they have?
- How are conflicts managed?
If you’re choosing between a member-based structure and a shareholder-based structure, it’s worth thinking about what you’re really trying to achieve: ownership and investment returns, or participation and purpose.
Choosing The Right Structure: When You Want Members, Shareholders, Or Both
If you’re deciding how to structure your business (or you’re planning a restructure), the members vs shareholders question is really a proxy for bigger decisions about control, fundraising, and long-term plans.
Here are some common scenarios we see for NZ small businesses.
If You Want Investment And Clear Ownership
If you want to raise capital, bring in investors, or build an asset you can eventually sell, a company with shareholders is often the starting point.
In that setup, make sure you’re clear on:
- who owns what percentage
- what rights attach to each shareholding
- how decisions get made (and who has veto rights)
- what happens if someone wants out
Share transfers are a common pain point, especially when a founder leaves or an investor wants to exit. If you’re anticipating changes in ownership, it’s worth understanding how to transfer shares properly so you don’t end up with invalid transfers or disputes about who owns what.
If You Want A Purpose-Led Or Member-Led Model
If you’re building something where ownership and profit distribution aren’t the point (for example, a community group, professional network, or a member service organisation), a membership structure may fit better.
The biggest legal risk here is usually unclear governance: when nobody’s sure who can vote, how leaders are appointed, or what happens when there’s conflict.
Getting your constitution right early is a big part of staying stable as you grow (and as personalities change).
If You Want Flexible Control Between Founders
Even for companies with shareholders, many founder disputes come down to assumptions that were never properly documented. If you’re starting with a co-founder, it’s smart to set the expectations early - not just “who owns what”, but also:
- who does what work
- who contributes what money or assets
- what happens if someone leaves early
- how decisions get made if you disagree
Depending on the business, a Founders Agreement can be a practical way to document these commercial realities alongside your shareholding structure.
If You’re Running A Business And Bringing In Staff Or Contractors
This is slightly separate from members vs shareholders, but it’s a common confusion: employees are not “members” and they’re not “shareholders” unless you specifically issue shares or create an equity plan.
If you’re hiring, make sure your basic documentation is in place, like an Employment Contract, so everyone understands the relationship from day one.
Key Legal Documents That Clarify Members vs Shareholders (And Prevent Disputes)
The fastest way for “members vs shareholders” confusion to become a real business problem is when expectations aren’t written down.
It’s not that people are trying to be difficult - it’s that when money, time, and control are on the line, everyone tends to remember conversations differently.
Here are the core documents that usually matter most.
Company Constitution
Your Company Constitution sets the internal governance rules. Even small companies benefit from a tailored constitution where you want clarity on voting, director powers, and share transfer restrictions.
Shareholders Agreement
Your Shareholders Agreement typically covers the commercial “rules of the relationship” between shareholders. This is where you can set out:
- decision-making thresholds (ordinary vs special decisions)
- reserved matters (things directors can’t do without shareholder approval)
- dividend policy (if relevant)
- exit terms and transfer rights
- deadlock processes (what happens if you can’t agree)
Founders Agreement (Early Stage)
When you’re early stage and still figuring out roles and contributions, a Founders Agreement can help you formalise the fundamentals before (or alongside) more complex investor-style documentation.
Share Vesting (When Equity Is Earned Over Time)
If you’re giving someone equity because they’re going to build the business with you, you may not want them to keep all their shares if they leave after 3 months.
That’s where vesting comes in. A Share vesting arrangement can help align ownership with long-term contribution.
Privacy And Data (Often Overlooked)
This isn’t directly about members vs shareholders, but if you run a membership-based organisation, you’re likely collecting personal information (names, emails, payment details, maybe health info depending on what you do).
That’s when you’ll usually need a fit-for-purpose Privacy Policy and a compliant approach under the Privacy Act 2020.
It’s one of those legal foundations that can feel “optional” until a complaint comes in or a breach happens - and then it gets serious quickly.
Key Takeaways
- The difference between members vs shareholders depends on your structure: companies have shareholders (who hold shares), while many member-based organisations (like incorporated societies) have members who aren’t shareholders and don’t hold ownership through shares.
- In a company, shareholders generally have ownership rights (through shares) and key voting powers, while directors manage the company’s day-to-day operations and strategy.
- In member-based organisations, governance usually depends heavily on your internal rules (like a constitution), so clear processes for voting, joining/leaving, and disputes are essential.
- If you want investment, growth, and a clear ownership model, a company/shareholder structure is often appropriate - but you should document decision-making, exits, and share transfers clearly.
- Key documents like a Company Constitution and Shareholders Agreement can prevent costly disputes by clearly setting out rights, responsibilities, and decision-making rules from day one.
- If equity is earned over time (especially between founders), share vesting can help ensure ownership reflects ongoing contribution rather than early promises.
- Where your business collects personal information (including member lists), you should take Privacy Act 2020 compliance seriously and have a suitable Privacy Policy in place.
If you’d like help choosing the right structure or getting your governance documents sorted (so everyone’s clear on who the members are, who the shareholders are, and what rights attach to each), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
