Definition of member : ( Section 41 )

All the subscribers of the Memorandum of Association shall be deemed to have agreed to
become members of the company and on registration of a company shall be entered as
members in the Registrar of members.
Section 2( 27) of the Companies Act, 1956, provides, that a member , in relation to a
company, does not include a bearer of a share warrant of the company issued in pursuant of
section 114.
Section 41 also deals with definition of member which provides as under:1. The subscribers of the Memorandum of a company shall be deemed to have agreed
to become members of the company, and on its register 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.
3. Every person holding equity share capital of a company and whose name is entered
as beneficial owner in the records of the depository shall be deemed to be a
member of the concerned company.
Therefore, a person must give his consent in writing by way of subscription clause of the
Memorandum of Association or by an application for allotment of shares or by transfer deeds
for transfer shares in his name. However, a person may become a member of a company by
operation of law, i.e. by transmission of shares etc.
(Subscriber to the MOA Agreed in writing Beneficial owner)
How to become a member of a company?
1. Membership by subscriber to the Memorandum.
2. Membership by agreement in writing
a. Existence of an agreement to become a member, and
b. His name being entered in the Register of members.
3. Deemed member
If a person whose name has been entered in the Register of members and who has, in
fact, accepted the position and acted as a member, it will be presumed to be an
agreement in writing unless the presumption is rebutted by proof to the contrary.
4. Membership by conversion of debentures into shares
5. Membership by operation of law or transmission of shares.
Who can become a member of a company :
In addition to an individual person, the following may also become a member of a company.
1. Company
A company can become a member of another company. The company must have
powers under its Memorandum & Articles to make investment in other bodies
corporate.

2. A Registered Co-op Society

A Registered Co-Operative society may become a member of a company, provided it
is recognised as a separate legal entity and a society can be treated as a person
having separate legal entity apart from the members constituting it and thereby
capable of becoming a member of a company under section 41(2) of the Act.
3. A Non Resident Indian ( NRI ) as member
Without general or special permission of RBI, a person who is not resident in India,
can not become a member of a company registered in India, as no shares can be
issued or transferred to him without general or special approval of the RBI.
4. Status of minor as a member
Since the minor is incapable of entering into a contract because contract by a minor is
void ab initio and thereby not eligible to agree in writing to be a member, he can not be
entered in the register of members.
5. HUF as a member
HUF is represented by its Karta. The Companies Act does not prohibit membership of
HUF, in case of HUF, the shares can be registered in the name as Karta of HUF
6. Registered Trade Union as a member
7. Share holding in joint names
If more than one person jointly apply for and are allotted shares in a company, each
one will be regarded as a member. In the case of joint applicants, they can insist
having their names registered in such order as they may require. The following points
should be considered in the case of joint shareholders.]
1. Treated as one member : Joint shareholders shall be counted as one member
in case of counting for quorum for a voting and for equisitioning under section
169.
2. Served on first holder : all the documents, notices and dividend warrant, etc. will
be served on the first named joint holder and it will be deemed as sufficient
compliance unless the instructions in writing to other effect have been given to
the company.
3. A Proxy will be appointed by all of them acting jointly.
4. Transfer : In case of transfer of shares by joint holders, the transfer will be
effective and valid only if it is made by all the joint holders.
5. Liability : All the joint shareholders shall be jointly and severally liable to pay
unpaid calls to the company.

Who can not become member

1. Partnership firm cannot be a member of a company.
Section 2(38)(b) provides that only a person can be a member of a company
who has agreed in writing to become a member and whose name is entered in
the Register of members.
However Section 25(4) of the act, provides that when the company is licensed
under section 25, a firm may become member of any association or such
company licensed under section 25.
2. Public office such as Collector cannot be a member of a company.
The Collector of Central Excise or the Secretary to the Government of India, as
such, is not a legal entity. Therefore, shares cannot be held in the name of a
public such public office.
Cessation of membership
A person may cease to be a member of a company on the following grounds.
1. On a valid surrender of shares
If a company surrender his shares in accordance with the provisions contained
in Companys Articles, he ceases to be a member.
2. On transfer of shares
If a member transfers all his shares held in the company he ceases to be a
member as soon as the transfer is registered in the name of the company.
3. By rescission of contract of membership on ground of misrepresentation
of mistake
If a person who has applied for allotment of shares on the basis of the
prospectus issued by the company having misrepresentation or mistake, he
may opt for cancellation of contract and may claim compensation.
4. On Bankruptcy of member
A bankrupt is held to be a member of the company so long as his name is on
the register of members. If the receiver is appointed by the court then receivers
name shall be entered in the Register of members.
5. On forfeiture of shares
A company has powers in its articles to forfeit the shares in the case of any call
remains unpaid. In that case on the date of valid forfeiture of all the shares, a
person may cease to be a member on his shares being forfeited.
6. On death of the member

A person may cease to be the member on his death, but in such a case the
deceased members state remains liable until the registration of some person
entitled under a transfer from his executors or administrators.
7. On expulsion of membership
8. On buy-back of shares
If a shareholder / member offers all his shares for buyback by a company and
the same are bought back as per the relevant provisions, then he ceases to be
a member.
Member V/s. Shareholder
In the case of a company, limited by, the persons whose names are put on the
Register of Member, are the members of the company. They may also the 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 them
their own right. In such a situation, the terms member and shareholder are
interchangeably used to mean the same person.
(Entry in Register of Members On allotment of shares become share holder)
It was held that unless the context otherwise requires, the word member under
section 2(27) means a shareholder excepting a person who is a bearer of a share
warrant of the company.
In case of an unlimited company or a company limited by guarantee, a member may
not be a shareholder, for such a company may not have a share capital.. However,
sometimes a distinction is maintained between a member and a shareholder in the
case of a company having sharecapital. In other words, as regards the same set of
shares one person may be a member and another be the shareholder of the company.
(Unlimited company / Limited by Guarantee: Member may not be a shareholder)
The distinction arises in the following situations:
1. When person will cease to be a shareholder, though he continues to be the
member of the company :
On sale: X sells the shares to Y. He fills in a share transfer form and
hands it over to Y. He also gives the shares certificate representing the
shares to Y. In return for sale of shares, he receives consideration from
Y. X is no longer a shareholder as he has sold the shares and property
in the shares has passed to Y. But the name of X continues to be on
the Register of members till the transfer of shares is registered by the
company in favour of Y. ( Transfer of shares )

On death: X dies and his property, including shares, is inherited by Y,

his legal representative. X is no longer the shareholder. He is not in
existence to hold the shares. Y is holding the shares in his own right

and, therefore, can rightly be called the shareholder. But X continues to

be the member as his name still appears on the Register of member.
However, as soon as Y gets his own name registered in the Register of
members, then X will cease to be a member.(Transmission of shares)

On becoming insolvent: X becomes insolvent and his property,

including shares, vests in the Official Receiver or Official Assignee. The
Official Receiver or Assignee is holing the shares in his own right.
Therefore, X is no longer the shareholder, though he continues to be
the member of the company.( Insolvency )

2. Bearer of Share warrant not member of the company :

Ordinarily, a person who is holding a share warrant is a shareholder but he is
not a member of the company as the name is struck off the Register of
members. However, sub-section (5) of section 115 provides for a exception to
this rule. A bearer of share warrant may be deemed to be a member in case
the article of Association so provide for certain purpose as defined in the
articles.
3. Subscriber of Memorandum:
A person who subscribes to the Memorandum of Association immediately
becomes the member even though no share allotted to him.
4. In case of a company limited by guarantee having no share capital or an
unlimited company having no share capital.
Rights of members/ shareholders
A. Statutory right:
Relating Meetings:
1. Right to vote at meeting (Sec. 87).
2. Right to requisition an extraordinary general meeting of the Company
(Sec. 169).
3. Right to receive notice of general meeting (Sec. 172).
4. Right to appoint proxy and inspect proxy register (Sec. 176).
5. Right to require the company to circulate resolution (Sec. 188).
Relating to Directors:
1. Right to elect director.
2. Right to remove director.
Right to apply Court:
1. Right to apply to the Court for relief in case of oppression.
2. Right to apply to the Court for relief in case of mismanagement.
3. Right to apply to the Court for winding up of the Company.

3. Right to apply to the Court to have any variation of shareholders rights set
Aside.
Relating Shares:
1. Right to have certificate of shares with 3 months in case of allotment.
2. Right to transfer of shares.
Right to obtain copies/ inspect:
1. Right to inspect the register of members/ debenture holders and to get extract
there from.
2. Right to obtain M. O. A. and A.O.A.
3. Right to obtain/inspect minutes of proceeding of general meeting.