This article has been written by Anlyn E S a student of Government Law College, Thrissur

Who is a member?

A member is one of the company’s owners whose name has been entered on the register of members of the company. Members have certain powers to the company’s directors to run the company on their behalf. According to section 2(55) of the 2013 Companies Act, “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 the company; (iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository”

The words, ‘member’ and ‘shareholder’ are synonymous words except in some cases. Referring to the subscribers of memorandum, the sections tells that they shall be entered as members in the register of members or registration of the company. The courts have ruled that that a person shall be regarded as a member if he/she has acquired the right of membership though his name is not. In the register [N. Satya Prasad Rao v. Venuparmula Lakshmi Narasimha Sastry, (1988) 64 Comp Cas 492 AP] and a person whose name is in the register may not be regarded as a member if he/she did not agree to be a member in writing or is not accepting his position as such. 

How to become a member

By any of these ways one can become a member of a company:

1. By subscribing to memorandum: 

Section 2(55)(I) of the 2013 Act says that subscribers of memorandum shall be deemed to become the members of the company. In the registration their names will also be added. In Official Liquidator v. Suleman Bhai Kachhi, the court held that the subscriber of memorandum is to be treated as having become the member by the very fact of subscription. Neither application form, nor allotment of shares is necessary. Even an absence of entry in the register of members cannot deprive him/her of his/her status. He acquires, as soon as the company is registered, the full status of a member with all the rights and liabilities”. 

2. By transfer:

One can purchase shares of a company in open market and apply to the respected company to make him as a member. According to section 2(55), it only needs two requirements: (1) an agreement in writing to become a member and (b) an entry in the register.

3. By allotment:

A person can become a member of the company by agreeing in writing to take shares in the company by allotment. 

4. By Transmission (section 56):

On the death of a member his/her heir or the person who is entitled to succeed his estate by law gets the right to have shares transmitted to his name in the company’s register of members. Transmission is totally different from transfer. Section 56(2) states that “Nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted”. This section lays down the formalities of transfer specially provides that nothing in the section shall prejudice the power of the company to register as a shareholder any person to whom the right to any shares has been transmitted by the law. It follows that an instrument of transfer is not necessary. No formalities like transfer deed, execution, attestation and stamp duty are needed. Provisions relating to formalities of transmission are generally found in the company’s articles. The provisions relating to transfers are equally applicable to transmissions. 

Where the company has accepted transmission in respect of a part of the shares but demanded succession certificate or probated “will” in respect of the rest of the shares, the CLB held that the company had lost the right to refuse transmission for all shares. No other person had raised or claimed any objection. In a case in the Supreme Court, the state of Orissa became entitled by the devolution of shares of a Maharaja but the company refused to register the State’s representative as a shareholder. Justice Bachwat held that the state became entitled to the shares by operation of law. It was therefore a case of transmission and the company was bound to accept the same. A

A company was not allowed to refuse the registration of transmission in favor of legal heir of deceased member on the ground that he was carrying on a competing business. Among Christians, a letter of probate is not required for succession under a will. The legal heir ha d established an unopposed will in his favor. The CLB said that the company was not justified in demanding a letter or probate.  where the succession letter was produced, but the company objected to non-payment of stamp duty, the CLB directed the transmission to be carried out. The matter of stamp duty to be sorted in the court. [Renn Kana Dutta v. Gour Nitye Tea and Industries Ltd, (20070 135 Comp Cas 271 (CLB)].

Liabilities of members 

Liability of members depends upon the company. If the company has ample of liabilities, all the members are liable for all the debts of the company contracted during the period of his/her membership. Most of the companies are incorporated with the liability of members limited by shares. Each member is bound to contribute the full nominal value of his/her shares and their liability ends here. Let us detailly look into the liabilities of the members of a company. 

1. Apart from an express agreement, a shareholder /member is liable to make the payment in cash of the whole nominal amount shares held by him. In case of a company limited by guarantee, a member is liable to extent of his guarantee and in an unlimited company to an unlimited extent. The amount of shares may not be paid all at once, but from time to time and when the company makes calls on shareholders. All money payable by any member to the company under memorandum of articles of association of the company shall be a debt due from him to the company. 
2. Liability in case of reduction of members below seven in a public company and two in a private company for the payment of the whole debts of the company. 
3. Liability of a subscriber of a public company to manage the affairs of the company as director in certain cases

Duties of members

Now let’s move on to the duties of a member of the company. Usually, they are entitled to do these duties:

• If not paid, contribute the sum of shares that has been agreed 
• Pay the recurring annual subscription to the running costs of the company in addition to the upfront capital contribution.
• A member can be considered as one of the company’s owners whose name has been written in the register of members of the company. Members have some powers to the company’s directors to run the company on their behalf.
• They should follow the decision of the majority.

Reference

1. https://vakilsearch.com/blog/membership-in-a-company/
2. Company Law, Avatar Singh
3. Company Law, N.C. Jain
4. https://elderflowerlegal.co.uk/the-rights-and-responsibilities-of-members/ 

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