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MEMBERS

Table of Contents

QUESTION BANK

Q.1 Define the term “Shareholder” and “Member” of a company.

Q.2 State the various modes in which person may become a member of company.

Q.3. Define the term ‘shareholder’ and ‘member’ and state the circumstances as to how a person may cease to be a member?

4. Explain in detail modes of acquiring membership and collective membership rights.

SHORT NOTES

(1) Shareholders.

(2) Members.

I] WHO IS A MEMBER / SHAREHOLDER?

A person holding a share or shares in a company is called a ‘member’ or ‘shareholder’. Holding a share in a company is a necessary condition to become a member. In other words, a person whose name is entered into the register of members is called a member of a company.

‘Shareholder’ means a person who holds certain shares in a company. In certain cases, a person may be a shareholder but not a member. For example, in case of a share transfer, the transferee becomes the holder of shares, but he does not become a member until his name is registered in the company’s register.

II] DEFINITION OF MEMBER:-

According to S. 2 (55):-

(a) Subscribers of the memorandum of a company shall be deemed to have agreed to become a member of the company.

(b) a person who agrees in writing to become a member of a company and whose name is entered in the register of members of the company.

(c) A person holding equity share capital of a company and whose name is entered in as a beneficial owner in records of the depositary shall be deemed to be a member of the concerned company.

III] MODES OF ACQUIRING MEMBERSHIP:-

Following are the different modes of acquiring membership in a company–

(1) By Subscribing to the Memorandum[1]:-

Every subscriber of a company’s memorandum shall be deemed to have agreed to become a member. On its registration, he shall be entered as a member in the register of members. Subscribers to the memorandum of association are ipso facto[2] members of the company. There is no need for application and allotment of shares in such cases.

Official Liquidator V/s Suleman Bhai[3]

Held—As soon as the memorandum of association is registered, the subscribers become company members with all rights and liabilities.

(2) By Application and Allotment[4]:-

A person who makes an application in writing to the company to become a member of it and whose name is entered into the company’s register of members is treated as a member of the company. He shall specify the number of shares he desires to take in his application. If the company accepts the application, the person becomes a shareholder by allotting shares to the company.

(3) By Holding Qualification Shares[5]:-

The person holding qualification shares becomes the director or shareholder of a company. No person shall be appointed as a director unless he takes or signs and files with the Registrar an undertaking to take from the company his qualification shares, if any.

(4) By Purchase of Shares:-

When a person buys shares in the open market and applies to the company concerned to register him as a member, he becomes a member after registration.

(5) By Transfer:-

Where a share transfer is made and registered with the company, the transferee becomes entitled to be a member of the company.

(6) By Transmission of Shares:-

When a member dies, the person or executor who is entitled to succeed to the deceased member’s estate becomes a member by the transmission of shares in his name. The transfer of shares and transmission of shares are not the same.

(7) By Acquiescence and Estoppel / Member by Holding out[6]:-

A person is deemed a member of a company if he allows his name to be on the company’s register or allows himself to be held out as a company member during the winding up of a company; such person is liable as a contributory.

IV] WHO CAN BECOME A MEMBER:-

A person who is competent in contracting can become a member. S. 11 of the Indian Contract Act provides that every person of majority age and sound mind is competent to contract.

V] WHO CAN NOT BE A SHAREHOLDER:-

The following persons cannot be shareholders or members-

(a) Minor

(b) Person of unsound mind.

(d) A person who is not competent to enter into an agreement under any law for the time being in force.

VI] Cessation of Membership:-

There are certain acts mentioned as follows by which a person ceases to be a member of a company:-

(1) By Transfer of Shares:-

By transferring his shares, a person ceases to be a company member. When registering a transfer, the company strikes the transferee’s name from the register of members.

(2) By Surrendering Shares[7]:-

Company Act makes no specific provision for the surrender of shares. The court has accepted the principle that the surrender of shares amounts to a forfeiture of shares. The article empowers only the Board of Directors to accept the surrender of shares by the shareholder.

(3) By Forfeiture of Shares[8]:-

The provision relating to the forfeiture of shares is usually contained in the articles of association. It lays down the circumstances in which a company’s power of forfeiture of shares is exercised, e.g. for the company’s benefit, for non-payment of calls, etc.; when forfeiture of share is made, the shareholder ceases to be a member.

(4) By Death of a Member:-

In case of a member’s death, shares of the deceased member remain liable for transmission. On presentation of probate, the deceased member’s name is deleted from the members’ register, and the successor’s name is entered in its place.

(5) By Trustee in Bankruptcy[9]:-

An insolvent member is bound to disclaim his shares if the trustee of shares becomes bankrupt.

(6) By Rescission of Contract[10]:-

If the contract to take shares or shares is vitiated by misrepresentation in the prospectus, etc., the shareholder may rescind the contract and cease to be a member.

VII] REGISTER OF MEMBERS (S. 88):-

Every company shall keep a register of its members and enter the following particulars-

(1) Name, address and occupation of each member.

(2) Number of shares held by each member, the amount paid or agreed to be considered as paid on those shares.

(3) The date on which each person was entered in the register as a member.

(4) Date on which person ceases to be a member.

The register may be kept in one or more bound books and shall be kept at the company’s registered office.

VIII] LIABILITY OF MEMBER:-

The liability of a member depends on the nature of the company. In the case of an unlimited company, every member will be liable for all debts of the company constructed during the period of his membership. In the case of a limited company, the member’s liability is limited to a certain extent. In a company limited by guarantee, each member is liable to contribute to wind up the sum of money specified in the liability clause of the company and memorandum of association. In the case of a company limited by shares, each member is liable to contribute when called upon to do so (or pay the remaining portion of the share amount).

IX] CALL ON SHARES[11]:-

A valid call shall satisfy the following requirements-

(1) By Board of Directors:-

The duly constituted Board shall make the call on shares of Directors. The Board cannot delegate this important power to anyone. The Board of Directors, in making calls, should have been duly appointed and qualified, a meeting of directors should have been duly convened, a proper quorum should be present, and the resolution-making call shall be duly passed.

(2) On Uniform Basis:-

No discrimination is permissible when making a call. The call on shares should be made on a uniform basis. This is a mandatory requirement of valid calls; class discrimination in shares is prohibited.

(3) Amount, Time and Place of Payment should be Specified:-

The resolution-making call on shares should specify the amount, time and place of payment therein.

In Re-Cauley and Co. Ltd.

Held—The call was invalid because it did not specify a payment date. However, passing a subsequent resolution specifying the payment date and giving members fresh notice would make that call perfectly valid.

(4) Bona-Fide grounds:-

The power of call for payment should be exercised on the bonafide ground, and it should be exercised for the company’s benefit.

(5) In accordance with the Articles:-

Call on shares shall be made in compliance with the provisions of the articles of association of a company.

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NOTES

1) Forfeiture of Shares[12]:-

If a valid call is made and the amount is not paid within the due date, the company may either take action to recover the amount against the defaulting member or forfeit his shares. A company’s articles of association generally contain a provision for forfeiture of shares for non-payment of calls.

A) Before forfeiture of shares, notice is mandatory:-

Notice upon the defaulting member is a condition precedent of forfeiture. The notice shall specify the exact amount due from the shareholder and also contain a clear warning that in the event of non-payment, before the time fixed, shares will be forfeited.

B) Forfeiture shall be bonafide:-

The power to declare shares forfeited is in the nature of trust to be exercised for the benefit of a company.

2) Surrender of shares[13]:-

The courts recognise share surrender on the principle that it has the practically same effect as forfeiture. Share surrender is done with the shareholder’s assent. Articles of association ordinarily give the Board of Directors the power to accept share surrender. Share surrender should not be used as a means of exemption for a shareholder from his liability to a company.

3) Lien on Shares[14]:-

A company has prima facie no lien on a member’s shares. However, the Articles of Association may and usually do provide that the company shall have a first and paramount lien on each member’s shares for his debts and liabilities to the company.

A lien gives the company a charge over each member’s shares to secure any debt the member may owe the company.

The articles generally empower a company to enforce a lien on shares by sale after default. However, if the article does not empower the company to sell the defaulter’s shares, the company may apply to the court to enforce the lien.

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[1] कंपणीचे घटणेत भागधारक होण्यास सहमत झाल्याने [ज्ञापन/ स्मृतिपत्र की सदस्यता लेकर]

[2]By the fact itself

[3] AIR 1955 MB 166

[4]अर्ज करून भाग मिळाल्याने [आवेदन और आवंटन द्वारा]

[5] संचालक होण्यासाठी अवश्यक भाग असल्याने [योग्यता शेयरों को धारण करकेs]

[6] भागधारक नसताना तसे दर्शविल्याने [स्वीकृति और रोक/सदस्य द्वारा होल्ड आउट करके]

[7] भाग माघारी देण्याने [शेयरोंको सरेंडर करके]

[8] भाग जप्तीने [शेयरों की जब्ती द्वारा]

[9] दिवाळखोरी [दिवा लिया पन]

[10] करार रद्द होण्याने [करार के निरस्तीकरण द्वारा]

[11] भागाची रककत मागविने [शेअर के रक्कम की मांग]

[12] भाग जप्ती [शेयरों की जब्दी]

[13] भाग माघारी करणे [शेयरों का समर्पण]

[14] भाग कव्जात ठेवन्याचा अधिकार/ भागांवर कब्जा दाखविनेचा अधिकार [भाग परग्रहणाधिकार/ भाग काब्जेमे रखनेका अधिकार]