MEMBERSHIP

In the ordinary sense, a person who holds the shares of a company is said to be a
member of that company. But in legal sense, a person is considered to be a member of
a company only if his name appears on the Register of members of that company.

As per section 41 of the companies Act, 1956, “Only a person who has signed the
M/A of a company and every other person who agrees in writing to become a member
of a company and whose name is entered in the Register of members can be
considered as the member of a company”.

Modes of Acquiring Membership:

A person may become a member of a company in the following ways.

1. By subscribing to the M/A of a company: The subscribers to the M/A are the
original members of a company, as they become the members of the company
from the very date of its incorporation, and there is no need for the entry of his
name in the register of members.
2. By agreeing to purchase qualification shares or by agreeing to become a
first director: When a person agrees to become the first director of a company,
he becomes a member of the company, because he has to purchase the
qualification shares for becoming a first director of the company.
3. By application and allotment: By applying for shares in writing and getting
the allotment of shares directly from the company and getting his name
registered in the register of members, a person becomes a member of the
company.
4. By transfer of shares: Shares of a public company are freely transferable. A
person may become a member by buying shares from an existing member and
by having the transfer registered and getting his name placed on the register of
members.
5. By transmission of shares: Transmission is the passing of title or property in
shares by operation of the law on the happening of such events as death or
bankruptcy of a shareholder. A person may become a member if he succeeds to
the shares of deceased member.
6. Through an order of the court: A person can become a member of a
company, when his name is entered in the register of members as per the order
of the court.
7. By conversion of debentures into shares: Holders of convertible debentures
are permitted to convert their debentures into shares and become the members
of a company.

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 Rights and liabilities of members

Rights of Members:
The various rights of a member may be grouped under the following three heads-
I. Statutory rights
II. Documentary rights
III. Legal rights
I. Statutory rights: These are the rights which are granted to the members in the
companies Act. These rights cannot be taken away or modified by any provisions in the M/A
or A/A. Some of the statutory rights of members are as follows.
1. Right to alter M/M and A/A of the company.
2. Right to obtain copies of certain documents from the company, viz-
a. M/A and A/A
b. Profit and loss account and balance sheet of the company.
c. Minutes of the proceedings of the general meetings.
d. Resolutions.
e. Trust deed.
3. Right to inspect certain books or registers viz.,
a. Register of members and the index thereof.
b. Register of debenture holders and the index thereof.
c. Copies of annual reports.
d. Register of investments of a company not held by it in its own name.
e. Minutes of books of general meeting.
4. Right to receive the share certificate.
5. Right to transfer shares.
6. Right to receive dividend and bonus shares.
7. Right of nomination.
8. Right to receive notice of the general meetings together with a copy of directors’ report,
auditor’s report and annual accounts.
9. Right to attend general meetings and exercise voting rights.
10. Right to appoint a proxy and inspect a proxy register.
11. Right to require the company to circulate the reservation.
12. Right to demand a poll and to move resolutions.
13. Right to demand to call an extra-ordinary general meeting whenever necessary.
14. Right to participate in the appointment of directors and auditors in the AGM.
15. To participate in the removal of any directors by passing an ordinary resolution.
16. Right to apply to central government for ordering an investigation in to the affairs of the
company.
17. Right to apply the Tribunal –

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 a. To have any variation of shareholders’ rights to set aside.
b. In the case of company’s refusal to register the transfer of shares.
c. For rectification of register of members.
d. For calling an AGM, if the BOD defaults in holding a such meeting.
e. For calling an extra-ordinary meeting if for any reason it is impractical to call or
conduct such a meeting.
f. For ordering an investigation in to the affairs of the company.
g. In case of mismanagement.
18. Right to petition to the tribunal for winding up of the company.
19. Right to share in the assets of the company on its winding up, after distribution to the
creditors.
20. Right to reject the contract to purchase the shares and claim damages when the share are
allotted on the basis of misrepresentation in the prospectus.
21. Right to make complaints to the central government against undesirable members of the
company’s management and requesting for their removal.
II. Documentary rights: In addition to the statutory rights, there are certain rights that
can be conferred upon the shareholders by the documents like the M/A and A/A.
III. Legal rights: These are the rights given to the members by the general law of the
land. For example in case of any misstatement of a material fact in a prospectus, a person
who has applied for the shares on the faith of such prospectus and has been allotted shares
can avoid the contract and can claim damages under the general law.
Liabilities of Members:
Liabilities of a member in a company depends on the nature of the company.

1. Every member is liable to pay the amount of the face value of each share held by him.
If partially paid the amount, his liability is limited to the unpaid amount of shares.
2. Every member is liable to pay interest on the amount due on his calls.
3. In case of companies limited by guarantee, every member is liable to contribute the
amount guaranteed by him.
4. In case of unlimited company, each member is liable to an unlimited extent.
5. The liability of members becomes unlimited after the reduction of number of
members below the legal minimum.
6. Members who have transferred their shares continues to be liable for the unpaid
amount.
7. A member whose shares have been forfeited continues to be liable till such shares are
re-issued.

Who can be members?

Any person, who is a major, is of sound mind and is not disqualified by any law, can
become a member of a company. In short any person who is competent to enter into a
contract can become a member of a company.

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1. Minor: A minor is incompetent to enter into any contract and therefore, he
cannot be member of a company. However, a minor can acquire the shares of a
company through his guardian. But in this case, the company should register,
not the name of the minor, but only the name of the guardian of the minor as a
member in the register of members.
2. Partnership firms: A firm cannot be registered as a member as it is not a legal
person and the partners may not remain constant. A firm, however, may
purchase shares in a company in the individual names of its partners as joint
shareholders.
3. Foreigners: A foreigner can also be a shareholder but his voting rights are
suspended when he becomes an alien enemy [i.e. during war].
4. Insolvents: An insolvent remains a member until his name appears on the
register of members. He is also entitled to vote even though his shares vest in
the official assignee.
5. Companies: A company if permitted by its articles, can become a member of
another company and may attend a meeting through a duly appointed
representative. The BODs of the company may authorize such person to attend
any meeting of any class of members of the company.
6. HUF: Shares in a company can be purchased by a HUF through head of the
family. In this case head of the family [Karta] shall become a member of the
company.
7. Trustees: A trustee cannot be member because a company is not bound to
recognize the existence of the trust. A trustee who buys shares in his individual
capacity will be treated as a member.
8. Registered societies: A society registered under the Societies Registration Act,
1860, can hold shares in a company in its own name and its name may be
entered on the register of members provided it is so authorized by its M/A or
A/A.
9. Persons taking shares in fictitious name: A person who makes an application
for allotment of shares or for the registration of transfer of shares in a fictitious
name shall be liable to imprisonment which may extend up to 5 years.
10. Joint Holders: The joint holders are the persons who hold the shares in a
company in their joint names. The following are the legal provisions relating to
joint shareholders:
i) The joint shareholders are counted as one member.
ii) The signature of any one of them is sufficient for signing requisition.
iii) The company is bound to handover only one share certificate.
iv) The company may pay dividend to a person whose name is first written
on the register of the members.
v) The transfer of shares by the joint shareholders is effective only if it is
made by all of them jointly.

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Termination of membership:
1. By transfer of shares: When a person sells and transfers his shares to a
transferee on a duly executed transfer form, his name will be deleted from the
Register of members and in his place, the transferee’s name will be entered.
2. By forfeiture of shares: When the shares of a member are forfeited by the
company for the non- payment of calls, naturally, the name of the member will
be deleted from the register for members.
3. By valid surrender of shares: When a member surrenders his shares, where
such surrender of shares is permissible, and his name will be removed from the
Register of members.
4. By death/Transmission of shares: On the death of a member, his shares are
transmitted to his legal representative by the operation of law.
5. By insanity: On the insanity of a member his legal representative will become
a member.
6. By lien: When a company exercises lien (i.e. right to retain shares) by giving
14 days’ notice to the debtor member, his membership comes to an end.
7. Winding up of the company: On the winding up of a company membership
gets terminates. But he continues to be liable as a contributory, and is also
entitled to a share in the surplus assets.

Register of members:
Register of members is a register or book in which detailed information of each and
every member is kept.

Legal provisions of the Companies Act, 2013 relating to the Register of

Members:

1. Every company shall keep and maintain the following registers viz:
a) Register of members.
b) Register of debenture holder and
c) Register of any other security holders.
2. The register of members should separately indicate the details of each class of
equity and preference shares held by each member.
3. Every register maintained shall include an index of the names.
4. A company may keep a foreign register in any country outside India.
5. The register shall be kept at the registered office of the company. It may also be
kept in any other place in India in which more than 1/10 (One-tenth) of the
total number of members reside.
6. The register of members shall be prima facie evidence of the correctness of the
contents which are authorized to be stated in it under the Companies Act.

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Contents of register of members:
It must contain the following particulars:
a) Name, address and occupation of each member.
b) Number of shares held by each member.
c) The distinctive numbers of shares.
d) Amount paid on each shares.
e) The date on which the name of each person was entered in the register of
members.
f) The date on which the membership is terminated.

Closure of register of members:

A company may close the register of members for a total period of 45 days in a year,
but cannot close this register for more than 30 days at a stretch. Before closing, the
company must give at least 7 days notice of closure to all the members through an
advertisement in a newspaper.

The following are the circumstances when a register of members is closed-

a) When general meeting are to be prepared.

b) When dividend list is to be prepared.
c) When call list is to be prepared.
d) When right shares or bonus shares are to be issued to the existing shareholders.

Foreign register:
According to sec 88(4) of the Companies Act 2013, a company may also have a
foreign register of members, which contains the names and particulars of members
residing outside India. But a duplicate copy of the same is to be maintained at the
registered office of the company.

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