Membership of Company

1. Definition of Member
2. Shareholder Vs. Member
3. Eligibility & Methods of Membership
4. Termination of Membership
5. Rights of Members
6. Liabilities of Members
7. Register of Members
8. Benami holdings
9. Maintenance of Register
10. Closure of Register
 Definition of Member
Section 41 of Companies Act, defines member as,
“ a person has signed the Memorandum of Association
and every person who agrees in writing to become a
member of company and whose name is entered in the
register of members, shall become member of
company”.
 Definition of Member
The membership of company can be secured in
following ways.
1. By acting as signatory to Memorandum.
2. By agreement and entry in the register of
members.
Thus, a person who holds the shares of company but if
his name does not appears in the register of member, he
can not be legally called a member of the company.
 Shareholder Vs. Member
Shareholder Member
1. A member not only holds the shares
1. A shareholder is merely a holder of
but also his name is entered in the
shares.
register of member
2. Any restriction on transfer of shares 2. There is no such situation occurs.
unable to enter shareholder in Because only after successful transfer,
members register. name is entered in register.
3. When member transfer his shares but
3. There is not anything happen as in
his name is yet to remove from register,
case of member.
he is still a member of company.

In spite of all above differences, in practice, the

expression ‘shareholder and members are synonyms.
 Eligibility & Methods of Membership

To become a member of a company, one must

have attained the age of majority, should be of sound
mind and not disqualified by any law. A minor cant be
admitted as a member. A firm is not legal person, it can
not registered as a member of the company but partners
may registered as joint members.
 Eligibility & Methods of Membership
Following are different methods of becoming
member of a company.
1. By subscribing M.A. of company before its
registration [ Sec. 41(1)]
2. By making application to the company for shares.
3. As transfer of shares.
4. By acting as nominee in the letter of renunciation of
allotment.
 Eligibility & Methods of Membership

5. By transmission of shares on death, lunacy or

insolvency of a member.
6. By agreeing to pay for qualification shares for
acting as director.
7. By surrender of share warrant.
8. By principle of estoppels.
9. By entry in the register of members.
 Termination of Membership
A shareholder ceases to be a member of the
company under any one of the following circumstances;
1. When he transfer his shares through the registration
of transfer.
2. When he surrender his shares before their
forfeiture.
3. When shares are forfeited on account of non
payment of call money.
4. When he becomes a lunatic, insolvent or when he
expires.
 Termination of Membership

5. When company exercises its right of lien on

shares.
6. When he converts share certificates into share
warrant.
7. When he transfers the ownership of shares through
gift.
8. When he renounces the allotment.
9. When company is wound up.
 Rights of Members
There are number of rights as a member,
following are some of them;
1. A member is entitled to receive notice, circulars,
statutory reports, annual report of directors, auditor
reports etc.
2. He is entitled to attend and vote in a statutory meeting,
general and extra-ordinary general meeting. (Sec. 171)
3. He has right to appoint proxy.
4. A member has right to receive share certificates (Sec.
113).
 Rights of Members
5. He has right to inspect the statutory books of company
free of charge and take extracts, if necessary.
6. He has right to apply to Company Law Board for
rectification of the register of member.
7. Under special circumstances he has right to call extra-
ordinary general meeting. (Sec. 167)
8. He has right to receive bonus shares on capitalisation
of profit.
9. He has right to demand poll at a meeting.
 Rights of Members

10. Right to alter Memorandum of Association or Articles

of Association of the company.
11. Right to present petition to the Company Law Board
for relief in case of miss-management .
12. Right to share in the assets of the company on its
winding up.
13. Right to apply to Central government for ordering an
investigation into affairs of the company.
 Liabilities of Members
1. Every member is liable to pay the calls as per the M.A.
2. Every member is liable to abide by the provisions of
M.A. & A.A.
3. A member, if so, liable to pay interest on the
outstanding calls.
4. A person whose shares are forfeited, continues to be
liable to pay the outstanding amount on call at the time
of forfeiture.
5. A member is liable as a contributory to contribute the
outstanding amount on shares if any, at the time of
winding up the company.
 Register of Members
As per the Companies Act, 1956 (Section 150)
every company must maintain a register of members
which should contain the following particulars;
1.Name, addresses and occupations of members.
2.The statement of shares held with particulars relating to:
a. Number of shares held.
b. Their distinctive numbers.
c. Amount paid or agreed to be considered as paid
on the shares.
 Register of Members

3. Date of entry in register of members.

4. Date on which ceased to be a member.
The amount due and amount paid are two columns are
incorporated if the shares are not fully paid.
If a company does not comply with these requirements, the
company and every officer of the company responsible for
this are liable for fine.
 Benami holdings

A Benami holder is one whose name is entered in

the register of member as the holder of shares but does
not have any beneficial interest in such shares. They are
remain ostensible owners of shares. This practice has
been exploited by the investors for evasion of tax.
Hence, the companies (Amendment) Act, 1974, has
introduced new sections viz. 187C & 187D in order to
restrict the misuse of this practice.
 Maintenance of Register

The register of member must be prepared

immediately after allotment of shares is completed. In
case of membership exceeds fifty, there must be an
index of member to failure quick reference. The index
& register must be keep up-to-date. Any change in
membership must be entered in register of attraction
made in the index of members within 14 days from the
date of alteration in the register of member.
 Maintenance of Register

If the articles of the company provided, a

company having share capital and with a branch in a
foreign country, may maintain a register of members in
that country. It is called foreign register of members.
The same is a part of the principal register of members
and all rules regarding inspection, closure etc. that are
applicable to later are also applicable to former.
 Closure of Register

A company may close register after giving

previous notice not less than seven days by
advertisement in local newspapers. Company law
provide that any company can close its register of
members for not more than 30 days at a time and not
more than 45 days in a year. If any default in this is
made, every officer in the company in default shall be
punishable with fine which may extend to Rs.500 for
every day during default continues.
 Closure of Register
The closure of the register is exercised due to
following reasons.
1. Before general meeting of share holders.
2. When interim dividend is to be declared.
3. When share capital is to be recognised.
4. When call is to be made.
5. When new shares are to be issued to the existing
members pro-rata.
During the closure period any transfer or change
of membership is not allowed.
 Rectification of Register of Members
Section 111, provide that any aggrieved person,
or any member of the company, or company itself can
send application to the Company Law Board for
rectification of the register of members. The specimen
of notice of rectification of Registrar of Members is as
below;
 NOTICE OF RECTIFICATION OF REGISTER OF MEMBERS

No. of Company......................... Form No............................

Notice of Rectification of Register of Members.
Pursuant to Section 111 of the Companies (Amendment) Act 1988.
Name of the Company...........................Ltd., presented by..............................
.....................Company Ltd. Hereby gives you notice, pursuant to Section 111 of the Companies
Amendment Act, 1988 that by an order of the Company Law Board dated the 18th day of May
1990, the following rectification has been made in the Register of Members of the Company.
(Give here the details of the rectification order by the Court.)
Dated the .................day of ......................1990
Signature
Destination*

*(State whether Director, Managing Director, Manager or Secretary)

 Variation of Shareholders’ Rights

The rights of the members holding any class of

shares can be altered only if it is permitted by the
Memorandum of Association & Articles of Association.
Section 106 and 107 lay down certain procedure for
altering rights attached to the shares. The same can be
described in following points.
 Variation of Shareholders’ Rights
1. The content for the variation should be owned
by a special resolution passed by the
shareholders concerned or consent in writing ¾
of shareholders.
2. If the shareholders have any preferential rights,
it can be altered by the issue of new shares of
that class only. Section 107, empowers the
dissenting shareholders to apply to the court for
the cancellation of variation.