What do you understand by the members of a company? Are they the same persons as the shareholders? How is the membership of a company acquired?
Ans. The Act does not lay down any dis-qualification for debarring any person to become member of a company. It seems, however, that as membership involves an agreement to become a member, the provision of Section 11 of the Indian Contract Act would be applicable. According to Section 11 of the Contract Act any person who is competent to contract may become a member of a company. This is, however, subject to the provision of the Memorandum and Articles of the company. The Articles may provide that certain persons cannot become members of the company. It follows, therefore, that a minor or a lunatic may be allotted shares but the application must be signed by his guardian. But, neither the guardian nor the minor or lunatic are liable as contributories. A minor or a lunatic can acquire membership of a company by succession or gift. Since a ‘firm’ is not a ‘legal person’, it has been held that it cannot subscribe to the memorandum.
Section 42 of the Companies Act (1 of 1956), specifically lays down that a body corporate cannot be member of its holding company except in cases where the subsidiary company is legal representative of a deceased member of the holding company or is concerned as trustee or was member of the holding company before commencement of the Act or before becoming subsidiary. Otherwise, corporate bodies, being legal persons can be members of a company.
Sec. 2(55) of the Company Act 2015 provides pew definition of member as under “member”, in relation to a company, means-:–
(i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members;
(ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of tlic company; ,
(iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository;
A person may become a member of a company in the following ways- The subscribers to the memorandum of Association of a company are de to have agreed to become its members and shareholders.
Whether the members and the shareholders are the same persons?—The words “member” and “shareholder” are used interchangeably and generally speaking, apart from few exceptional cases, they are, synonymous. There are, for example, companies limited by guarantee or unlimited companies, which may not have share capital and therefore, can have no shareholders, but they do have members. Contrarily the bearer of a share warrant is a shareholder, but not a member, as his name is struck off from the register of members.
How to become a member of a company.— A person may become member of a company in the following ways—
1. Membership by subscribing to memorandum.
2. Membership by application and allotment.
3. Membership by application.
4. Membership by a transfer.
5. Membership by succession.
6. Membership by acquiescence.
1. Membership by subscription.—It should be remembered here that a memorandum of association contains an association clause and the persons desirous to be formed into a company subscribe their names to the memorandum with their addresses, descriptions, and the number of shares each one of them has agreed to take. All these persons are deemed to have agreed to become members of the company only by reason of their having signed the memorandum.
2. Membership by application.—To acquire membership by this way a person must send in an application for such numbers of shares as he desires to have or as the company might allot to him. The application is regarded as an offer “from the applicant and it is to be accepted by” the company. The acceptance, if made, should be communicated to the applicant by giving him a notice of allotment. This, however, is not all there is another condition mentioned which must be complied with before the shares transferred in his name if otherwise entitled. A person actually becomes a member only when his name is entered on the register of members.
3. Membership by transfer.—As regards this way of becoming a member, shares are made freely transferable by Section 44 of the Act but the mode of transfer is left to be decided by the articles of the company. Accordingly, a person taking a transfer of shares becomes entitled to be placed on the register of members in place of the transferor in respect of the shares so transferred subject to the provisions of the articles, in that
4. Membership by succession.—This mode comes into effect on the death of a member. Shares of a deceased member vests in his executors or administrators and the estate is liable for calls if the shares are not fully paid. The executors or administrators in whom shares have to becomevested are themselves entitled to be registered, if they so choose, as the holders of the shares in the absence of any provisions in the articles to the contrary. A succession certificate alone is not sufficient evidence to enable certificate of the register of members, when the shares were held in joint holding. But the applicant can get the shares transferred in his name if otherwise entitled. /In re New Monk Hooshi Tea Co. Ltd., A.LR. 1967 CaL 196.
5. Membership by acquiescence.-As regards this mode it has been held by certain judicial decision that aperson may be deemed to be a member of a company if he allows his name apart from any agreement to become a member, to be on the register of members or otherwise holds himself out or allows himself to be held out as a member.
6. A gift of shares will be valid if the same is made or executed in the manner prescribed by the articles of the company. re Paradise Motor Co. Ltd., (1968 Vol.) 38 Com. Cas p. 863. It is clear, therefore, that to constitute membership, it is essential that an entry to this effect must be made in the register of members. The only exception to this rule, is in the case of signatories to the memorandum of association.