Shareholder

DEFINITION OF MEMBER:

The general rule shows that a person who is the holder of shares in a company can be treated as member only when his name is entered on the company’s registered of members

However, sec. 32 of our Companies Act provides that ‘every subscriber of the Memorandum of the company shall be deemed to have agreed to become a member of the company and on its registration, shall be entered as a member in its register of member.

Thus, a transferee of shares whose name is not registered as a member on the company’s registered is not a member, and the transferor, in spite of the transfer, remain a member.

Exception: The exception to the general rule are:-

A person who signs in the memorandum is a member and is liable as a contributor though his name dose not appear in the register.
A person who takes shares and applies to have his name in the register but his name is, by mistake or wrongfully, left out of the register may become a member taking step to have his name put in the register.
A person whose name is, by mistake or wrongfully, put in the register of members, is not a member provided that he does not know that his name is so put.

MEMBERS WITHOUT BEING SHAREHOLDER:

A Person may become member without being shareholders in certain circumstances which are as follows-

A deceased persons though, may not be termed as shareholder but may continue his membership so long his name appears in the register of members;
Just like a decreased person, a transferor of shares may continue his membership so long his name continues in the register of members, though he is no more a shareholder of the company;
In the case of companies limited by guarantee or unlimited companies, a person may become member of that company without being shareholder since such companies may not have share capital;
One of the methods of becoming member is to subscribe to the Memorandum. So, a person may become member of a company merely by subscribing to the Memorandum on the date of its registration though by this time, no share is allotted to them.

SHAREHOLDER WITHOUT BEING MEMBER:

A person may become the shareholder of a company without being its member under the following circumstances-

A transferee of a deceased or insolvent member is treated as a shareholder and not a member until his name appears in the register of members.
A person holding a share warrant becomes merely a shareholder and not a member since his name does not appear in the register of members after the issue of such share warrant.

WAYS OF BECOMING MEMBERS:

A person may become the member of a company in the following ways:-

By subscribing to the Memorandum: Section 32 (1) of our Companies Act provides that subscribers to the Memorandum shall be deemed to have agreed to become its members and on the registration, they shall be entered as the members in the register book.

The signatories to the Memorandum are deemed to be the members of the company s from the date of its incorporation, neither allotment of shares nor entry the name in the register of member is necessary. After registration of the company, the subscribers are liable to pay for the shares agreed to be taken by him when valid call is made to him

It is to be kept in mind that the subscriber must take shares directly from the company. And he cannot escape his liability as a shareholder except by means of a legal transfer of his particular shares.

A subscriber cannot rescind the contract for purchase of shares even on the ground of fraud or mis-representation on the part of the promoter.
By allotment of shares: A person may become the member of a company by getting an allotment of shares and putting his name in the register of members. But if a person applies for shares and withdraws his application before it is accepted, he is entitled to rescind the contract though the company allots his shares.
By purchasing qualification shares: Directors who have agreed to take qualification shares and do the same, stand in the same footing as subscribers to the Memorandum. Thus, by purchasing qualification share, a person may become members of the company.
By transfer of shares: A transferee shareholder may also become a member of a company. But two conditions are to be fulfilled in this regard:
1. The transfer has to get registered; and
2. the transferee has to place his name on the register of members
By transmission of shares: transmission means the passing of title by way of operation of law on the happening of certain events like death, insolvency, lunacy etc. of a shareholder. One of the ways of creating membership id transmission of shares. But in this case, also the existing shareholder has to place his name in the register of members
By acquiescence: If a person, being a member allows his name to exist on the register of member, under such circumstance, he cannot deny his membership. A right disclaim the right of ownership must be exercised within a reasonable time, otherwise he will be estopped from exercising such rights. And by this way, membership may also be created.

WHO CAN BE MEMBERS:

The Companies Act does not provided as to who can be the members of he company. But since there is a contract between a member and the company I regards to the membership right, so the qualification to enter into an agreement shall be deemed to be the qualification of becoming a member. Persons who may be the members are described below:

Minor: As discussed earlier that persons who are competent to contract may be the member. A minor is incompetent to contract, so, he con-not be the member. In England, though a minor may become the member of the company, but it is voidable at his option during his minority or within a reasonable time after the attainment of his majority. In our law, though a minor may not become a member, but he can hold shares and allow his name in the company’s register. But during this period, he incurs no liability. And when he attains majority, it is at his option to repudiate the contract within a reasonable time.
Unsound person: Just like a minor, a person of unsound mind cannot become a member on the ground of incompetency to enter into a contract.
Insolvents: Though an insolvent may also be incompetent to contract and so, losses the right to become a member, but situation may be different, he may be a member, unless the Article of the company provided otherwise.
Partnership firm: As a Partnership firm is not a legal person, so, it cannot buy shares of another company in its own name. But as a part of firm’s assets, it may buy shares and it is better to hold it in the name of individual partners.
Company: As a company is a legal person so, it has the right to become the member of another company. But it is to be authorized by its Articles to become this. Besides, except the authorization of the Memorandum, a company cannot invest money in another company. There are certain restrictions on the part of a company to be the member of another company which are as follows:
Company not to buy its own shares- No company limited by shares shall buy its own shares or the shares of a public company of which it is a subsidiary company, which amounts to the reduction of share capital without the consent of the court. [sec. 58]
Subsidiary company not to be member of its holding company- Under section 33 of the Companies Act, a subsidiary company shall not be the member of its holding company.
Registered society: A society registered under the Registration Act, 1908 may become the member of a company, but in this regard, authorization of Memorandum or Articles is required.
Trade Union: A trade union may be the member of a company if it is registered under the laws relating to trade union and its registration. And it may also hold shares in its own corporate name.
Joint holders: If two or more persons join together and hold shares of a company in joint name, they are collectively termed as joint holders. The rules relating to joint holders are as follows:
In the case of a public company every joint shareholder is treated as a single member;
In case of a private company, joint shareholders are not to be considered as separate members, rather a single member;
The joint shareholders are jointly and severally liable to pay calls on their shares;
In case of exercising voting and other rights, the joint holder whose name appears first in the register of member, shall have the right to vote and to attend meetings.
Trustees: As a trustee, no one can be the member of a company. Section 37 clearly provides that no notice of any trust whether expressed or implied or constructive shall be entered in the register, or be receivable by the Registrar. So, we see that a trustee, as a trustee, cannot become the member of the company, but in a personal capacity, he may be an individual member of a company.

TERMINATION OF MEMBERSHIP:

The membership may be terminated in any of the following ways-

By transfer: By transfer of shares and by putting the name of the transferee in the member’s register, the membership of a person is terminated.
By transmission: By transmission of shares, i.e., transfer of share by operation of law and when the name of the transferee is registered in the members index, the membership is also terminated.
By forfeiture: A membership is also terminated by forfeiture of shares on account of non-payment of call and interest thereon.
By surrender of shares: By surrender of shares if it is permitted, the membership of a person is terminated.
By sale: When shares are sold in execution of a decree, the membership is ceased.
By conversion: When share certificates are converted into share warrant in case of fully paid up shares, a person’s membership may be ceased.
By death of the shareholder: If any shareholder dies and his shares pass to the legal representative of the deceased, the membership of the deceased is terminated when the transferee places his name in the register of member
By redemption: By redemption of redeemable preference shares, the membership is also lost.
By allotment: In case of a subscriber to the Memorandum, if all the shares are allotted to others, the membership of that person is terminated.
By power of lien: Shares may be sold by the company in exercise of a power of lien over it for the dues of the company and thus the membership of a person may be terminated.
By rescission of contract: A person may rescind the contract of purchasing shares. And a person when rescinds the contract on the ground of fraud or misrepresentation, his membership right is terminated. But this rule has no application in case of subscribers to the Memorandum.
By winding up: When the company is wound up according to the provisions of the Companies Act, the membership ceases to exist.

RIGHTS OF MEMBERS:

The members of a company enjoy various rights which are derived from the Companies Act, 1994 or from the Memorandum or Articles of association of the company. The rights may be as follows:

He has the right to obtain copies of Memorandum of association, Articles of association and certain resolutions and agreements on request and payment of the prescribe fees. (sec. 26)
He has a right to have the certificate of shares held by him within three months of the allotment. (sec. 158)

LIABILITY OF MEMBERS:

Besides having various rights, the members have some liabilities as well. According to the nature of the company concerned, members’ liabilities are as follows-

Company with unlimited liability: The company which does not have any limit on the liability of their members may be termed as ‘unlimited company’. In an unlimited company, every member is liable to the full extent of his personal assets for all the debts of the company contracted while he was a member. In the case of such companies, the member’s liability is the same as in a partnership.
Company limited by shares: When the liability of a member to contribute to the company’s assets is limited to the amount, if any, unpaid on his shares, in this case, the company becomes a company limited by shares. In such companies, the liability of its members is limited to the nominal value of shares held by each member. Here, the portion of capital to which each member is entitled is his share.
Company limited by guarantee: In the case of company limited by guarantee, the liability of its members is limited by the Memorandum of association to such amount as the member may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up. The nature of liability of member of a company limited by guarantee is like that here, each member undertakes that in the event of liquidation he will contribute an amount not exceeding a certain fixed sum towards settling the debts and meeting the cost of winding up provided the organization is wound up, when he was member or within one year from the cessation of his membership.
Liability on winding up of the company: Before paying the whole amount, if the company is wound up, the shareholders become liable as contributory to pay the balance when call is made on him. (sec. 238)

And when the company is wound up, every past and present member shall be liable to contribute to the assets of the company to an amount sufficient for payment of its debts and liabilities. But the past members shall not be liable to contribute if he has ceased to be a member for one year or upwards before the commencement of winding up. (sec. 235)