MEMBERSHIP OF A

COMPANY
 Acquisition of membership
 Termination of membership
 Rights of members
 Liabilities of members
 Difference between member and shareholder
 Definition of Member

 the terms shareholders and members are commonly used as synonyms

 Section 2(55) - a subscriber to the memorandum and deemed to have agreed to become a
member, is to be entered as a member in the register
 A person whose name is entered in the register of members of a company becomes a
member of that company (agrees in writing)
 every person holding shares of the company and whose name is entered as a beneficial
owner.
How to become the member of a company?

 Sec. 2(55)(i) - If a person subscribes the memorandum of association of a company, he

becomes a member by signing it.
 By allotment – Agrees in writing to take shares in the company by allotment.
 By transfer – Purchase shares of a company in the open market and then apply to the
company to register him as a member.
 By transmission (Sec.56) – On the death of a member, his shares transmitted to his
executor or to anyone entitled under law and registered under the latter’s name in the
company’s register. Transmission different from transfer. No transfer deed, execution,
attestation or stamp duty needed.
 Who may be a member?

 Person who is major and of sound mind. Minor – May be allotted shares but incurs no
liability (Palaniappa Mudaliar v. Offi)cial Liquidator -1942). Persons of unsound mind
and insolvents not allowed.
 Company as member – a legal person – can invest in another company only if
authorized by the MoA.
 Trade union – registered under the Trade Unions Act, 1926.
 Partnership – not a person. Cannot buy shares on its own name.
 Deity – Not allowed. Shri Ganpati Panchayatan Sansthan Trust v. Union of India (2011)
– demat account
 Cessation of Membership

 Transfer
 Death
 Forfeiture
 Surrender
 Winding up of company
 In accordance with provisions of the AoA of the company
 Rights of Members

 Right to receive notice of meetings, attend, to take part in the discussion and vote at the
meetings.
 Right to receive copies of the Annual Accounts of the company.
 Right to inspect the documents of the company such as register of members, annual returns,
etc.
 Right to participate in appointments of directors and auditors in the Annual General
Meetings.
 Rights to apply to the Government for ordering an investigation into the affairs of the
company.
 Right to apply to the Court for winding up of the company.
 Liabilities of Members

 Depends on the nature of the company

 If unlimited liability – every member is liable in full for all the debts of the company
contracted during his/her membership
 When limited by guarantee – each member bound to contribute in the event of winding up
a sum specified in the liability clause in MoA.
 Most companies – limited liability – bound to contribute the full nominal value of his
shares. Liability ends with it.
 Difference between member and shareholder
MEMBER
 A person whose name is entered in the register
of members of a company, is the registered
member of the company.
 Section 2 (55) defines it.
 The holder of a share warrant is not a member.
 Every company must have a minimum number
of members.
 The person who signs the memorandum of
association with the company becomes a
member.
SHAREHOLDER
 The person who owns the shares of a company
is known as shareholder.
 Not defined
 The holder of a share warrant is a shareholder.
 The company limited by shares can have
shareholders.
 After signing the memorandum, a person can
be a shareholder only when the shares are
allotted to him.