Membership: What You Should Know?

Membership What you should know? 1. Definition of a member 2. Member v. Shareholder 3. Modes of acquiring membership 4. Who may become a member? 5. Termination of membership 6. Rights of a member 7. Liabilities and duties of a member 8. Variation of the rights of a member 1

Definition of a member Section 41 of the Companies Act defines a member in the following words:

1. Subscribers of the Memorandum of a company 2) Agreement in writing to take shares of the company; and the registration of his name in its register of members. 3) Besides, a person may also become a member of a company through the depository system. 2

Member vs. Shareholder

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Persons whose names are included in the Register of members, are the members of the company.

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They may also be called shareholders of the company as they have been allotted shares and are holding them in their own right. In such a situation, the terms ‘member’ and ‘shareholder’ are used interchangeably. 3

DISTINCTION 1. A person who is holding a share warrant is a shareholder but he is not a member of the company. 2. In the case of a company limited by guarantee having no share capital or an unlimited company having no share capital, there will be only ‘members’ but no ‘shareholders’.

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3. A person who subscribers to the memorandum of association immediately becomes the member, even though no shares are allotted to him.

4. There may be situation where a person is the holder of shares but his name is not entered in the Register of members yet or vice versa.

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Modes of acquiring A person may become a member or a shareholder membership of a company in any of the following ways : 1. By subscribing to the memorandum of association 2. By agreement and registration f. by application and allotment. g. by transfer - the member may acquire shares from an existing member by sale, gift or some other transaction. h. by transmission 6

d) by estoppel/holding out - this arises when a person holds himself out as a member or knowingly allows his name to remain on the register when he has actually parted with his shares. e) conversion of convertible debentures or loans into shares on acquisition of shares on take-overs/ merger/ amalgamation through Court’s order.

3. By agreeing to purchase qualification shares 7

Who may become a member? a) Minor.

b) Company. c) Partnership firm d) Foreigner e) Hindu Undivided Family (HUF) 8

Termination membership

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Membership is terminated when a person’s name is removed from the register of members for some proper reason. 9

Rights of a member Liabilities and duties of a member Member v Contributory Can a member be expelled

Variation of shareholders’ rights (Section 106) 10