Membership in a Company

By definition, the term “Member” in relation

to a company means, one who has agreed to
become the member of the company by
entering his name into the ‘Register of
Members’. Every person who has agreed in
writing to become a part of the company and
also holds shares of the company is
considered the ‘Member of the Company’ and
is said to hold membership in a company.
Definition of ‘Member’
According to Section 2(55) of the Companies Act, 2013, member,
in relation to a company, means,
(1) The subscribers to the memorandum of a company who 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;
(3) Every person holding shares of a company and whose name is
entered as a beneficial owner in the records of a depository
(Depository is a place where financial securities are held in
dematerialized form.) shall be deemed to be a member of the
concerned company.
Herdilia Unimers Ltd. v. Renu Jain [1995] 4
Comp. LJ. 45 (Raj.), it was held that the moment
the shares were allotted and share certificate
signed and the name entered in the register of
members, the allottee became the shareholder,
irrespective of whether the allottee received the
shares or not.
Difference between Member & Shareholder
MATTER Member
A person whose name is entered
Meaning in the register of members of a
company.
Companies Act, 2013 defines
Definintion
‘Member’ under section 2(55)
Every company must have a
Company
minimum number of members.
A person who signs the
memorandum of association
Memorandum
with the company becomes a
member.
Shareholder
A person who owns the shares
of the company.
Shareholder is not listed under
the Companies Act, 2013
The Company limited by shares
can have shareholders
After signing the memorandum,
a person can become a
shareholder only if shares are
allotted to him.
MODES OF ACQUIRING MEMBERSHIP OF
THE COMPANY
It will be worth to know the various modes to become member of a company. A person
may become a member in a company in any of the following ways:
1. BY SUBSCRIBING TO THE MEMORANDUM OF ASSOCIATION
A Memorandum of Association (MOA) is an important legal document of a company
and it is prepared in the formation and registration process of a limited liability
company to define its relationship with members (shareholders). The MOA is
accessible to the public and describes the name of the company, physical address of its
registered office, names of shareholders and the distribution of shares. The MOA serve
as the constitution of the company.
According to Section 2(55) of the Act 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. It means that the
subscribers of the memorandum of a company become ipso facto members on its
incorporation and their name will be entered in the Register of Members.
Therefore, the signatories to the memorandum become members of
the company, simply by reason of their having signed the
memorandum.
It is also to be noted that section 3 of the Act requires that any seven
or more persons for the lawful purpose of forming a public company
and two or more person for the purpose of forming a public company
and one person for the purpose of forming OPC may subscribe their
names to the memorandum.
In Official Liquidator v. Suleman Bhai, it was held that neither
application form nor allotment of shares is necessary for becoming a
member of the company if subscribed the memorandum of the
company. Even an absence of entry in the register of members can
not deprive him of his status. He acquires, as soon as the company is
registered, the full status of a member with all rights and liabilities
 2. BY AGREEMENT
A person may also become the member of the company if he agreed
in writing to purchase the shares of the company and the company
has duly accepted the request of the person. It means when the
company has allotted the requisite number of shares on the basis of
application then it shall be presumed that the company has accepted
the request. Thereafter the name of the person is entered in the
register of the members.
It means except in the case of subscribers of memorandum, to
become a member of
the company, two conditions must be satisfied namely-
(a) that there is an agreement in writing to become a member and
(b) his name is entered in the Register of the member of the company.
 3. BY ALLOTMENT OF SHARES
The second part of section 2 (55) of the Act is related to those persons who
become members of the company by a method other than by subscribing to
the memorandum. Shares may be issued directly from the company and such
a transaction is referred to as "allotment“. Section 2 (55) lays down two
conditions which must be fulfilled before membership may be obtained by
this method-
(a) There must be an agreement in writing by the applicant to become a
Member and
(b) the name of the applicant must be entered in the register of members.
Offers for shares are made on application forms supplied by the company.
When an application is accepted, it is an allotment. Generally a person
becomes a member of the company by applying for the shares in writing and
securing the allotment thereof directly from the company.
 4. BY BENEFICIAL OWNER OF THE COMPANY
Clause (iii) of section 2(55) states that every person holding
equity share capital of 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.
According to section 8 of the Depository Act, 1996, a person
can hold shares of the company to the depositories in place of
having share certificates. A person who holds equity shares in
a demat form and his name does not appear in the company‘s
register of members still he will be regarded as member of the
company.
 5. BY TRANSFER
A person can became a shareholder by obtaining a transfer of shares
from another shareholder either for a consideration or as a gift but
the conditions of agreement and entry on the register of members
are necessary. Until the name of the transferee is put on the register
of members, he only holds shares; the legal title rests with the
transferor whose name is entered on the register of members. In
such situation, the expressions "holder of shares" and
"shareholders" become relevant because the transferor will remain
"shareholder" and the transferee will be the "holder of shares" till
the name of the transferor is struck down from the register of
members and the name of the transferee is entered in the register.
As soon as this formality is completed, "the holder of share" and
"shareholder" would be the same person.
 6. BY TRANSMISSION OR SUCCESSION
Transmission of share means transfer of title to shares by operation of law. This type
of situation arises when a shareholder died, inheritance, bankruptcy, and succession.
On death of the shareholder, legal heirs are required to submit a request letter
supported by an attested copy of the death certificate of the deceased shareholder
and the relevant share certificate. On transmission of shares, the person to whom
shares are transmitted became the new registered shareholder of the company and is
entitled to all the rights and subject to all liabilities as such shareholder.
Execution of transfer deed not required in case of transmission of shares.
Transmission will be registered by a company in the registrar of members.
Provisions related to transmission of shares are specified in section 56 of
Companies act 2013. As per section 56 (4) of companies act 2013, every company
shall, unless prohibited by any provision of law or any order of Court, Tribunal or
other authority, deliver the certificates of all securities transmitted within a period of
one month from the date of intimation of transmission under sub-section (2) in case
of transmission of securities.
 7. BY PRINCIPLE OF ESTOPPEL
A person who, without having agreed to be a company's member, is
aware that his name is wrongly entered in its register of members but
takes no steps to have his name removed therefore may be estoppel from
denying his apparent membership to somebody who relied on it and
extended credit to the company. If a person finds himself on a company's
register of members and in some manner deals with the shares as if he
were really a member, the court may consider him as member and held
liable for the particular act.
The remedy of being removed from the register may be denied to such a
person and he might be held liable for debts in a winding up as one of the
contributories.
 WHO MAY BECOME A MEMBER
(a) Company as a member of another company: A company is
a legal person and so is competent to contract. Therefore, it can
become a member of any other company. However, it must be
authorized by its Memorandum of Association to invest in
the shares of that company or any other company. Also a
company cannot become a member of itself.
(b) Partnership firm as a member: A partnership firm is not a
legal person and as such it cannot, in its own name, become a
member of a company.
(d) Section 8 Company: A non-profit making company
licensed under Section 8 of the Companies Act, 2013
can become a member of another company if it is
authorized by its Memorandum of Association to invest
into shares of the other company.
(e) Foreigners as members: A foreigner may take
shares in an Indian company and become a member
subject to the provisions of the Foreign Exchange
Management Act, 1999, but in the event of war with his
country, he becomes an alien enemy and his power of
voting and his rights to receive notices are suspended.
(f) Minor as member: A member who is not a sui juris e.g., a
minor, is wholly incompetent to enter into a contract and as such
cannot become a member of a company. Consequently, an
agreement by a minor to take shares is void ab-initio. It has been
held by the Company Law Board (replaced by the Tribunal
under the Companies Act, 2013) that an agreement in writing
for a minor to become a member may be signed on behalf of
the minor by his lawful guardian and the registration of
transfer of shares in the name of the minor, acting through his
or her guardian, especially where the shares are fully paid
cannot be refused on the ground of the transferee being a
minor [Miss Nandita Jain v. Benett Coleman and Co. Ltd.].
(g) Insolvent as member: An insolvent may be a member of a
company as long as he is on the register of members. He is
entitled to vote, but he loses all beneficial interest in the shares
and company will pay dividend on his shares to the Official
Assignee or Receiver [Morgan v. Gray, (1953) All E.R. 213].
(h) Receiver: A receiver whose name is not entered in the
register of members cannot exercise any of the membership
rights attached to a share unless in a proceeding to which
company is a party and an order is made therein. Mere
appointment of a receiver in respect of certain shares of a
company without more rights cannot, deprive the holder of the
shares whose name is entered in the register of members of the
company, the right to vote at the meeting of the company
[Balakrishna Gupta v. Swadeshi Polytex Ltd., (1985) 58 Com
(j) Persons taking shares in fictitious names: A person who takes
shares in the name of a fictitious person, becomes liable as a
member besides incurring criminal liability under Section 38 of the
Act, (Punishment for Personation for Acquisition, etc., of Securities). As
per section 447, any person who is found guilty of fraud, is
punishable with imprisonment which shall not be less than six
months but which may extend to ten years and also liable to pay
fine which shall not be less than the amount involved in the fraud,
but which may extend to three times the amount involved in the
fraud. However, where the fraud in question involves public
interest, the term of imprisonment shall not be less than three years.
(k) Trade Union as member: A trade union registered under the
Trade Union Act, can be registered as a member and can hold
shares in a company in its own corporate name [All India Bank
Officers Confederation v. Dhanlakshmi Bank Ltd., (1997) 90 Com
Cases 225].
Can a public office be registered as a member ?

There is no provision in companies act, 2013 that a share in a

company may be held in the name of a public office. Any sui
juris (a person who is competent to contract) except the
company itself, can become a member of a company.
Section 2(55) provides how a person becomes a member the
term person has been held to include, among others, a
corporate sole. Thus a public office cannot be a member of a
company.
CESSATION OF MEMBERSHIP
A person ceases to be a member of a company when his
name is removed from its register of members, which
may occur in any of the following situations:
(a) He transfers his shares to another person, the
transfer is registered by the company and his name is
removed from the register of members;
(b) His shares are forfeited;
(c) His shares are sold by the company to enforce a lien;
(d) He dies; (his estate, however, remains liable for
calls);
(e)He is adjudged insolvent and the Official Assignee
disclaims his shares;
(f) He rescinds the contract of membership on
the ground of fraud or misrepresentation or a
genuine mistake;
(g) His shares are purchased by another
member.
(h) The company is wound up; or Though one
ceases to be a member, he remains liable as a
contributory and is also entitled to share in
the surplus, if any.
 Rights of the Members

The members of a company enjoy several rights and

they are the ultimate authority in the matters of the
company and its management. Their rights can be
grouped under three heads. They are detailed below:
1. Statutory Rights: These are the rights conferred
upon the members by the Companies Act. These rights
cannot be taken away by the Articles of Association or
Memorandum of Association. Some of the important
statutory rights are given in next slide:-
Right to receive notice of meetings, attend, to take part in the
discussion and vote at the meetings.
Right to transfer the shares [in case of public companies].
Right to receive copies of the Annual Accounts of the
company.
Right to inspect the documents of the company such as
register of members, annual returns, etc.
Right to participate in appointments of directors and auditors
in the Annual General Meetings.
Rights to apply to the Government for ordering an
investigation into the affairs of the company.
Right to apply to the Court for winding up of the company.
• 2. Documentary Rights: In addition to the statutory
rights, there are certain rights that can be conferred
upon the shareholders by the documents like the
Memorandum and the Articles of Association.
• 3. Legal Rights: These are the rights, which are given
to the members by the General Law.
Register of Members
(Sec 88)
 1. Maintenance of registers
Every company is required to keep and maintain the following
registers in such manner as prescribed:-
(a) register of members separately for each class of equity and
preference shares.
(b) register of debenture-holders separately for each class.
(c) register of any other security holders separately.
The register of members needs to be maintained separately for each
class of shares.
Every company limited by shares is required to maintain a register
of its members from the date of its incorporation. Rules allows a
period of 6 months from the date of commencement of these rules
to comply with the provisions.
Every company not having share capital is
required to maintain the register of members with
the specified particulars in respect of each
member:
•(a) Personal details such as name, address etc.
•(b) Date of becoming member
•(c) Date of cessation
•(d) Amount of guarantee, if any,
•(e) Any other interest, if any
 2. Manner of maintenance of various registers
Rule 5 prescribes the place of keeping registers, manner of
making entries etc. According to rule 5 (1), the entries in the
registers are required to be made within seven days from the
date of approval of allotment or transfer of shares, debentures
or any other securities, as the case may be. Such approval is
the approval by board or its committee.
Further rule 5 (3) provides that the company is required to
make entries in the respective registers within seven days after
approval by the Board or committee in forfeiture of shares,
transmission of shares and transfer of shares.
 3. Place of maintenance
According to rule 5(2), the registers are required to be
maintained at the registered office of the company.
However, by passing a special resolution, the company
may keep the register(s) at any other place within the
city, town or village in which the registered office is
situated or any other place in India in which more than
one-tenth of the total members entered in the register of
members reside. Hence, for maintaining the books at
any place other than registered office, approval of
members is required.
 4. Index of registers
Sub-section (2) of section 88 read with rule 6 provides for
maintenance of index of register. Every company having
not less than 50 members is required to include an index of
names in its register maintained under the provision of sub
– section (1) of section 88. It shall contain sufficient
indication to enable finding the entries relating to that
pages in the register.
The company shall make the necessary entries in the index
simultaneously with the entry for allotment or transfer of
any security in such Register.
 5. Maintenance of foreign register
Sub-section (4) of section 88 read with rule 7 deals with maintenance of
foreign register. A company may, if so authorised by its articles, keep in any
country outside India, in the same format as the principal register, a part of the
register referred to in sub-section (1), called “foreign register”. Such register
records the details of the members or debenture holders or of any other
security holders or of beneficial owners, resident in that country. This register
would contain the details of only of the residents of that country where it is
kept. Such register shall be deemed to be part of the company’s principal
register to which it relates.
The company shall file with the Registrar a notice of the situation of the office
where such register is kept in within 30 days from the date of the opening of
any foreign register. In the event of any change in the situation of such office
or of its discontinuance, the notice shall be filed with the Registrar. A foreign
register shall be open to inspection
 6. Entries for joint holders and minors
In cases of joint – holders, companies are required to make entries
in the register of members, debenture – holders or other holder of
securities in the names of all joint holders by giving particulars of
joint holders. The seniority of the joint holders depends upon the
order of name Since, minor is not competent to contract and could
neither apply for shares nor enter into any contract to acquisition
by transfer of shares, they may not become members in their own
name. Only in case of inheritance, a situation could arise in which
a minor may be owner of shares as per of succession law. In such
situation, minor can hold shares through his/her guardian , names
of guardians of minor should be entered in the register of member
with a view to comply with the provision of law in this respect.
 7. Authentication of entries in the register
The entries in the registers and index are to be authenticated by
the company secretary of the company or by any other person
authorised by the board for the purpose, and the date of the
board resolution authorising these entries shall be mentioned in
the register. For a foreign register, the entries are to be
authenticated by the company secretary of the company or
person authorised by the board by appending his signature to
each entry.
It appears that the expression “any other person” is used to
mean any competent individual whether officer of the company
or not. Any person may be authorised by the board to
authenticate the register. The word “person” may be described
properly to mean individual or natural person.
 8. Preservation of registers
Rule 15 provides for preservation of registers. The
register of members along with the index is to be
preserved permanently and kept in the custody of the
company secretary of the company or any other
person authorized by the board for such purpose.
The foreign register of members shall be preserved
permanently, unless it is discontinued and all the
entries are transferred to any other foreign register or
to the principal register.