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‘Members’
Prof. .S. D. Bhosale 69
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MEMBERS
QUESTION BANK
Q.1
Q.2
Define the term “Shareholder” and “Member” of a company.
State the various modes in which person may become a member of company.
Q.3. Define the term ‘shareholder’ and ‘member’ and state the circumstances as to how a
person may cease to be a member?
Q. 4. Explain in detail modes of acquiring membership and collective membership rights.
SHORT NOTES
(1)
(2)
Shareholders.
Members.
Table of content
DEFINITION OF MEMBER:-.................................................................................70
(1) By Subscribing to the Memorandum:-....................................................................70
(2) By Application and Allotment:-..............................................................................71
(3) By Holding Qualification Shares:-..........................................................................71
(4) By Purchase of Shares:- ..........................................................................................71
(5) By Transfer:- ...........................................................................................................71
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Cessation of Membership:-.....................................................................................72
(1) By Transfer of Shares:- ...........................................................................................72
(2) By Surrendering Shares:- ........................................................................................72
(3) By Forfeiture of Shares:-.........................................................................................72
(4) By Death of a Member:-..........................................................................................72
(5) By Trustee in Bankruptcy:-.....................................................................................72
(6) By Rescission of Contract:-.....................................................................................73
VII] REGISTER OF MEMBERS (S. 88):-.....................................................................73
VIII] LIABILITY OF MEMBER:- .................................................................................73
CALL ON SHARES:-.............................................................................................73
(1) By Board of Directors:-...........................................................................................73
(2) On Uniform Basis:- .................................................................................................73
(4) Bona-Fide grounds:-................................................................................................74
(5) In accordance with the Articles:-.............................................................................74
I]
WHO IS A MEMBER / SHAREHOLDER?
A person holding a share or shares in a company is called a ‘member’ or
‘shareholder’. Holding a share in a company is a necessary condition to become a member.
In other words, a person whose name is entered into the register of members is called a
member of a company.
‘Shareholder’ means a person who holds certain shares in a company. In certain
cases, a person may be a shareholder but not a member. For example, in case of a share
transfer, the transferee becomes the holder of shares, but he does not become a member
until his name is registered in the company’s register.
II]
DEFINITION OF MEMBER:-
According to S. 2 (55):-
(a)
(b)
(c)
Subscribers of the memorandum of a company shall be deemed to have
agreed to become a member of the company.
a person who agrees in writing to become a member of a company and
whose name is entered in the register of members of the company.
A person holding equity share capital of a company and whose name is
entered in as a beneficial owner in records of the depositary shall be deemed
to be a member of the concerned company.
III]
MODES OF ACQUIRING MEMBERSHIP:-
Following are the different modes of acquiring membership in a company-
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‘Members’
Prof. .S. D. Bhosale 71
(1)
By Subscribing to the Memorandum:-
Every subscriber of a company's memorandum shall be deemed to have agreed to
become a member. On its registration, he shall be entered as a member in the register of
members. Subscribers to the memorandum of association are ipso facto members of the
company. There is no need for application and allotment of shares in such cases.
Held—As soon as the memorandum of association is registered, the subscribers become
company members with all rights and liabilities.
(2)
By Application and Allotment:-
A person who makes an application in writing to the company to become a member
of it and whose name is entered into the company’s register of members is treated as a
member of the company. He shall specify the number of shares he desires to take in his
application. If the company accepts the application, the person becomes a shareholder by
allotting shares to the company.
(3)
By Holding Qualification Shares:-
The person holding qualification shares becomes the director or shareholder of a
company. No person shall be appointed as a director unless he takes or signs and files with
the Registrar an undertaking to take from the company his qualification shares, if any.
(4)
By Purchase of Shares:-
When a person buys shares in the open market and applies to the company
concerned to register him as a member, he becomes a member after registration.
(5)
By Transfer:-
Where a share transfer is made and registered with the company, the transferee
becomes entitled to be a member of the company.
(6)
By Transmission of Shares:-
When a member dies, the person or executor who is entitled to succeed to the
deceased member’s estate becomes a member by the transmission of shares in his name.
The transfer of shares and transmission of shares are not the same.
(7)
By Acquiescence and Estoppel / Member by Holding out:-
A person is deemed a member of a company if he allows his name to be on the
company’s register or allows himself to be held out as a company member during the
winding up of a company; such person is liable as a contributory.
1 AIR 1955 MB 166
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IV]
WHO CAN BECOME A MEMBER:-
A person who is competent in contracting can become a member. S. 11 of the Indian
Contract Act provides that every person of majority age and sound mind is competent to
contract.
V]
WHO CAN NOT BE A SHAREHOLDER:-
The following persons cannot be shareholders or members-
(a)
(b)
(c)
(d)
Minor
Person of unsound mind.
An un-discharged insolvent.
A person who is not competent to enter into an agreement under any law for
the time being in force.
VI] Cessation of Membership:-
There are certain acts mentioned as follows by which a person ceases to be a
member of a company:-
(1) By Transfer of Shares:-
By transferring his shares, a person ceases to be a company member. When
registering a transfer, the company strikes the transferee's name from the register of
members.
(2)
By Surrendering Shares:-
Company Act makes no specific provision for the surrender of shares. The court has
accepted the principle that the surrender of shares amounts to a forfeiture of shares. The
article empowers only the Board of Directors to accept the surrender of shares by the
shareholder.
(3)
By Forfeiture of Shares:-
The provision relating to the forfeiture of shares is usually contained in the articles
of association. It lays down the circumstances in which a company’s power of forfeiture of
shares is exercised, e.g. for the company's benefit, for non-payment of calls, etc.; when
forfeiture of share is made, the shareholder ceases to be a member.
(4)
By Death of a Member:-
In case of a member's death, shares of the deceased member remain liable for
transmission. On presentation of probate, the deceased member's name is deleted from the
members' register, and the successor's name is entered in its place.
(5)
By Trustee in Bankruptcy:-
An insolvent member is bound to disclaim his shares if the trustee of shares becomes
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bankrupt.
(6)
By Rescission of Contract:-
If the contract to take shares or shares is vitiated by misrepresentation in the
prospectus, etc., the shareholder may rescind the contract and cease to be a member.
VII] REGISTER OF MEMBERS (S. 88):-
Every company shall keep a register of its members and enter the following
particulars-
(1)
(2)
Name, address and occupation of each member.
Number of shares held by each member, the amount paid or agreed to be
considered as paid on those shares.
(3)
(4)
The date on which each person was entered in the register as a member.
Date on which person ceases to be a member.
The register may be kept in one or more bound books and shall be kept at the
company's registered office.
VIII] LIABILITY OF MEMBER:-
The liability of a member depends on the nature of the company. In the case of an
unlimited company, every member will be liable for all debts of the company constructed
during the period of his membership. In the case of a limited company, the member's
liability is limited to a certain extent. In a company limited by guarantee, each member is
liable to contribute to wind up the sum of money specified in the liability clause of the
company and memorandum of association. In the case of a company limited by shares,
each member is liable to contribute when called upon to do so (or pay the remaining portion
of the share amount).
IX]
CALL ON SHARES:-
A valid call shall satisfy the following requirements-
By Board of Directors:-
(1)
The duly constituted Board shall make the call on shares of Directors. The Board
cannot delegate this important power to anyone. The Board of Directors, in making calls,
should have been duly appointed and qualified, a meeting of directors should have been
duly convened, a proper quorum should be present, and the resolution-making call shall be
duly passed.
(2)
On Uniform Basis:-
No discrimination is permissible when making a call. The call on shares should be
made on a uniform basis. This is a mandatory requirement of valid calls; class
discrimination in shares is prohibited.
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(3)
Amount, Time and Place of Payment should be Specified:-
The resolution-making call on shares should specify the amount, time and place of
payment therein.
In Re-Cauley and Co. Ltd.
Held—The call was invalid because it did not specify a payment date. However, passing a
subsequent resolution specifying the payment date and giving members fresh notice would
make that call perfectly valid.
(4)
Bona fide grounds:-
The power of call for payment should be exercised on a bona fide ground, and it
should be exercised for the company's benefit.
(5)
In accordance with the Articles:-
Call on shares shall be made in compliance with the provisions of the articles of
association of a company.
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NOTES
1)
Forfeiture of Shares:-
If a valid call is made and the amount is not paid within the due date, the company
may either take action to recover the amount against the defaulting member or forfeit his
shares. A company's articles of association generally contain a provision for forfeiture of
shares for non-payment of calls.
A)
Before forfeiture of shares, notice is mandatory:-
Notice upon the defaulting member is a condition precedent of forfeiture. The notice
shall specify the exact amount due from the shareholder and also contain a clear warning
that in the event of non-payment, before the time fixed, shares will be forfeited.
B)
Forfeiture shall be bonafide:-
The power to declare shares forfeited is in the nature of trust to be exercised for the
benefit of a company.
2) Surrender of shares:-
The courts recognise share surrender on the principle that it has the practically same
effect as forfeiture. Share surrender is done with the shareholder's assent. Articles of
association ordinarily give the Board of Directors the power to accept share surrender.
Share surrender should not be used as a means of exemption for a shareholder from his
liability to a company.
3)
Lien on Shares:-
A company has prima facie no lien on a member's shares. However, the Articles of
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Association may and usually do provide that the company shall have a first and paramount
lien on each member's shares for his debts and liabilities to the company.
A lien gives the company a charge over each member's shares to secure any debt
the member may owe the company.
The articles generally empower a company to enforce a lien on shares by sale after
default. However, if the article does not empower the company to sell the defaulter’s
shares, the company may apply to the court to enforce the lien.
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