DIPL 052: COMPANY AND

PARTNERSHIP LAW

WEEK 9: MEMBERSHIP OF COMPANIES

 MEMBERSHIP OF COMPANIES
 INTRODUCTION

o A company even though an artificial legal entity must have

members and directors.

o This presentation focuses of the membership of companies, types

of members, the rights, responsibilities as well the liabilities of
Members. It will also discuss the register of members, members
right to inspect the register and how the membership of a
company may be terminated.

o Every company must have a member, and the minimum number

of members that a company is required to have is one. According
to section 7(5)of the Companies Act, 2019 (Act 992) the
maximum number of members that a private company is required
to have is fifty.
o There is however no maximum number of members for public
companies. Members of a company are also known as
shareholders or owners of the company. Act 992 does not define
who a member of a company is.

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 MEMBERSHIP OF COMPANIES
 TYPES OF MEMBERS OF A COMPANY CONT’D
o The Companies Act specifies how a person becomes or
may become a member of a company. These are as
follows:

o BECOMING A MEMBER BY SUBSCRIPTION

 According to section 33(1) of Act 992, the
subscribers to the Constitution of a company are
deemed to be members of that company.
 The subscribers are those who sign the Constitution
of the company in accordance with the Companies
Act before they are delivered to the Registrar for
Registration.
 By signing the Constitution, the subscribers indicate
their agreement to become members of the company
when it is eventually formed.
 The subscribers are normally or generally called
founding members or the original members of the
company.
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 MEMBERSHIP OF COMPANIES
 TYPES OF MEMBERS OF A COMPANY CONT’D
o BECOMING A MEMBER BY AGREEMENT
 Section 33(2) of Act 992 creates another category of
members of a company. According to that section, any other
person (apart from the subscribers) who agrees with the
company to become a member of the company and whose
name is entered in the register of members is a member of
the company.

 This category of members comprises those who become

members of the company after its formation. In the case of a
company that has shares, the agreement to become a
member entails agreeing to purchase shares in the company.

 It is important to note that it is not the entry of the name of

a person in the register of members of the company that
constitutes him/her as a member of the company.

 In the case of those who become members of the company

following its formation, it is the agreement with the company
to become a member that makes a person a member of the
company.
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 MEMBERSHIP OF COMPANIES
 TYPES OF MEMBERS OF A COMPANY CONT’D
o BECOMING A MEMBER BY AGREEMENT CONT’D
 This view is supported by the Supreme Court decision in
the case of ADEHEHYEMAN GARDENS VRS. ASSIBEY
(2003-2004) SCGLR 1016. This case decides that
registration of the name of a person in the register of
members is not a precondition to membership. The case
also decides that a person is a member of a company
with shares even if he/she has not been issued with a
share certificate or paid for the shares issued to
him/her.
o BECOMING A MEMBER BY TRANSFER OF SHARES
 Section 98(1) of the Companies Act deals with the
transfer of shares. According to the section except as
expressly provided in the Constitution of the company,
shares are transferable without restriction, and the
transfer has to be done in writing. To say that shares
are transferable without restriction means a shareholder
has the right to transfer his/her shares in a company as
and when he/she wishes and to whoever he/she wishes
to transfer them to, whether for free or for payment.
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 MEMBERSHIP OF COMPANIES
 TYPES OF MEMBERS OF A COMPANY CONT’D
o BECOMING A MEMBER BY TRANSFER OF SHARES CONT’D
 A person who acquires shares from an existing
shareholder of a company becomes a member of the
company.
 However, for a share transfer to have that result, it must
be registered with the company.
 Two documents are required for the purpose of
registering a share transfer. These two documents are
the instrument of transfer and the share certificate of
the transferor. The non-registration of a transfer will
lead to the non-recognition of the transferee by the
company.
o BECOMING A MEMBER BY TRANSMISSION OF SHARES BY
OPERATION OF LAW
 Section 102 of the Companies Act deals with the
transmission of shares by operation of law. According to
that section, the transmission of shares by operation of
law occurs in a number of situations. It may occur in
the event of the death of an existing shareholder.
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 MEMBERSHIP OF COMPANIES
 TYPES OF MEMBERS OF A COMPANY CONT’D
o BECOMING A MEMBER BY TRANSMISSION OF SHARES BY
OPERATION OF LAW CONT’D
 In that event, the position is that if the deceased was a
joint shareholder, then the shares will devolve on the
surviving shareholder or shareholders as the case may be.
 Where the deceased dies testate, his/her legal personal
representative will be the executor of his/her will and
where he/she dies intestate his/her legal personal
representative will be the administrator of his/her estate.
 Another situation in which the transmission of shares by
operation of law may occur is where a shareholder
becomes bankrupt or insolvent. In such a case, the shares
will devolve on a receiver or trustee in bankruptcy.
 A company does not have the right to refuse to register a
legal personal representative, a receiver or trustee in
bankruptcy of a shareholder personally as owner of the
shares that have devolved on him/her as such.

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 MEMBERSHIP OF COMPANIES
 WHO CAN BE A MEMBER OF A COMPANY?
o An individual could be a member of a company. An individual
may also be a sole member of a company

o A company may be a member of a company.

o A statutory corporation may be a member of a company. For

example, SSNIT holds shares in ABD Bank as well as CalBank

o A church may also hold shares in a company. For example, the

Methodist church is a member of Vanguard Assurance and
Quality Insurance.

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 MEMBERSHIP OF COMPANIES
 RIGHTS AND RESPONSIBILITIES OF MEMBERS
o The rights of member of a company are the things which the
Companies Act and the Constitution of the company entitle
him/her to do. According to Section 33(3), a member of a
company has such rights that Act 992 and the Constitution of
the company may confer on him/her. Thus, the source of the
rights of a member of a company may either be the
companies’ Act or the company’s Constitution or both.

o RIGHT TO ATTEND MEETINGS

 According to Section 34 of the Companies Act, members of
a company have the right to attend, speak and vote at
meetings of members of the company. Section 52
empowers a company through its Constitution to suspend
the right of certain categories of its members to attend and
vote at meetings of the company. Thus, section 49 deals
with the suspension of the voting rights of preference
shareholders subject to certain conditions.

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 MEMBERSHIP OF COMPANIES
 RIGHTS AND RESPONSIBILITIES OF MEMBERS CONT’D
o RIGHT TO SHARE IN THE PROFIT OF A COMPANY
 Members of a company with shares (shareholders) have
the right to share in the profit of the company, if the
company, while a going concern, makes profit. The right to
share in the profit of a company arises only if the company
makes profit and declares dividend.
 Dividend is the portion of the profit of a company that is
lawfully available for distribution among the shareholders.
The law is that it is the directors of the company who have
the authority to declare dividend. It is when dividend is
declared that a shareholder becomes entitled to his/her
share of it.
o THE RIGHT TO SHARE IN THE DISTRIBUTION OF THE NET
ASSETS OF THE COMPANY
 Members of a company with shares have the right to share
in the distribution of the net assets of the company when it
winds up. A company winds up when it ceases to carry on
the business for which it has been formed.

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 MEMBERSHIP OF COMPANIES
 RIGHTS AND RESPONSIBILITIES OF MEMBERS
CONT’D
o THE RIGHT TO SHARE IN THE DISTRIBUTION OF THE
NET ASSETS OF THE COMPANY CONT’D
 When a company winds up, the law requires it to pay
its debts and settle its liabilities. What remains of the
assets of the company after it has paid its debts and
settled its liabilities are referred to as the company’s
net assets. It is the net assets that are then shared
among the shareholders.
o OTHER RIGHTS
 According to Section 36 of the Companies Act,
members of a company have the right to inspect and
even make copies of the registrar of members.

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 MEMBERSHIP OF COMPANIES
 LIABILITIES AND DUTIES OF MEMBERS OF A
COMPANY
o DUTY TO OBSERVE THE CONSTITUTION OF THE
COMPANY
 Under section 29 of Act 992 , the registration of the
Constitution of a company, among other things,
creates a contract between the company and its
members. It also creates a contract between the
officers of the company and its members. A contract
is also created among the members of the company.
 A member of a company therefore has a duty to
observe the constitution of the company.
o LIABILITY TO PAY FOR SHARES HELD IN THE COMPANY
 Section 40 of Act 992 provides that a member of a
company with shares, before the company winds up,
is liable to contribute the balance of the amount
outstanding to be paid by the member in respect of
shares held by him/her in the company

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 MEMBERSHIP OF COMPANIES
 TERMINATION OF MEMBERSHIP OF A COMPANY
o COMPANY LIMITED WITH SHARES
 Membership of a company with shares continues until
i. a valid transfer of the shares held by the
member is registered by the company;
ii. the shares are transmitted by operation of law
to another person, or forfeited for non-payment
of calls; (A shareholder of an unlimited
company or a company limited by shares is a
member of a company. The shareholder must
fully pay for the shares held by him but if he has
not paid or partially paid, the company can
formally( demand or call) make a request for
him to fully pay up and if he fails or refuses to
pay, the company. If part payment has been
made the company will be required to return the
money or issue lesser shares.)
iii. the member of the company dies.

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