MEMBERSHIP

Definition of member-

(1) The subscribers of the memorandum of a company shall be deemed to have
agreed to become members of the company and on its registration shall be entered
as members in its register of members.
(2) Every other person who agrees in writing to become a member of a company and
whose name is entered in its register of members shall be a member of the
company
Member v/s Shareholder
The words member and shareholder are used interchangeably and generally speaking,
apart from a few eceptional cases, they are synonymous. !or eample, "ompanies
limited by guarantee or unlimited companies may not have share capital and therefore
can have no shareholders, but they do have members. "ontrarily, the bearer of a share
warrant is a shareholder, but not a member, as his name is not entered in the register of
members.
Who can become a member?
a) #inor$ Every person who is competent to contract may become a member. %
minor being incompetent to contract cannot become a member of a company.
&owever, a minor may be admitted as a member of the company in case of fully
paid up shares. (andita !ain v/s Bennett "olmon # "o$%
b) &.'.!($ &indu 'ndivided !amily (&'!) being not an artificial person cannot be
admitted as a member of a company.
c) )artnership !irm$ % partnership firm (whether registered or unregistered), not
being an artificial person cannot buy shares in its own name. *t may buy shares as
a part of the assets of the firm, though they will have to be held in the names of
individual partners. % firm may be a member of any association or a company
licensed under section 2+ as a charitable institution.
d) "ompany$ % "ompany being a legal person may become the member of another
company. ,ut a company can invest money in another company only if it is so
authori-ed by its memorandum of association. % company cannot however buy
it.s own shares ecept in a limited manner permitted by section //
Ho& to become a member?
'% B( s)bscribin* to Memorand)m of +ssociation
0ection 11 of the act provides that the subscribers of the memorandum of association
shall be deemed to have agreed to become the members of the company and on its
registration shall be entered as members in the register of lenders. Thus, the subscriber of
the memorandum is to be treated as having become a member by the very fact of
subscription.
,% -)alification shares for a director
'nder the "ompanies %ct no person is capable of being appointed a director of a public
company unless he takes or signs and files with the 2egistrar an undertaking to take from
the company his 3ualification shares if any. 0uch directors who have signed an
undertaking to take and pay for their 3ualification shares are also in the same position as
subscribers of the memorandum. They are also deemed to have become members
automatically on the registration of the company.
.% +llotment / 0)blic iss)e
% person may become a member by agreeing to take shares in the company by allotment

1% 2ransfer of shares
% person may purchase shares of a company in the open market and then apply to the
company to register him as a member.
3% 2ransmission of shares
4n the death of a member his eecutor or the person who is entitled under the law to
succeed to his estate gets the right to have the shares transmitted to his name in the
company.s register of members.
4% "onversion of debent)res into shares
*f the terms of issue of debentures include a term for conversion of debentures into
shares, on conversion of debentures into shares a person becomes a shareholder and
conse3uently a member of the company.
5% ES6P/S&eat E7)it(
5here the employees are allotted shares against E04)s or as sweat e3uity shares, they
become members of the company.
Ho& a 0erson can cease to be a member?
1) 0ale of shares
2) 6eath or insolvency
7) %malgamation8merger
1) !orfeiture of shares
+) 0urrender of shares
9) ,uy back of shares
/) 5inding up
Ri*hts of a member
0ome of the important rights en:oyed by members are
1. 2ight to appoint and remove directors
2. 2ight to appoint and remove auditors
7. 2ight to attend meetings
1. 2ight to receive dividend
+. 2ight to inspect registers, contracts etc.
9. 2ight to vote at meetings
/. 2ight to appoint proy
;. 2ight to apply to "ourt8"ompany <aw ,oard8"entral =ovt. for prevention of
oppression and mismanagement
8iabilities of a member
a% Present member
The liability of present members is restricted to amount )n0aid on their shares.
b% Past member
)ast members are also liable as contributories in certain circumstances. The liability of a
past member is sub:ect to the following 3ualifications as laid down in 0ection 129 ($
1. % past member is not liable to contribute if he has ceased to be a member for one
year or upwards before the commencement of the winding up.
2. % past member is not liable to contribute in respect of any debt or liability of the
company contracted after he ceased to be a member. *n other words, his liability is
only for the liabilities incurred upto the date of his membership.
7. >o past member is liable to contribute unless it appears to the court that the
present members are unable to satisfy the contribution. The primary liability is
that of the present share$holders to pay the unpaid balance. They should be
re3uired to pay in the first place and on their default, the past members become
liable to pay.