Definition of a Member — Section 2(55)
(i) 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.
(ii) 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.
(iii) 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.
Shareholder vs Member
 A holder of a share warrant is a shareholder but not a
member as his name is struck off the register of members
immediately after the issue of such share warrant.
 Co. limited by guarantee having no share capital or an
unlimited co. having no share capital there will only be
members but not shareholders.
 A person who subscribes to the MOA immediately
becomes a member, even though no shares are allotted to
him but not the shareholders of the co.
 The transferor or the deceased person is a member so
long as his name is on the register of members whereas he
cannot be termed a shareholder.
 Similarly , a shareholder by transfer is not a member
until his name is entered in the Co.’s register of members.
Who can become a member?
 An individual or body corporate.
 Person who is competent to contract.
 Provisions of Indian Contract Act,1872, regarding the persons
who can contract would apply.
The membership rights of some categories of person
are discussed below:
 Minor:
 Minor cannot agree to be a member of the Co.
 Minor when allotted shares, his name entered in the
register, in ignorance of his minority, co. can remove the
name when come to know.
 Minor can also repudiate the allotment at any time during
his minority.
 If neither party repudiates, minor doesn't incur any
liability. But position will change when he attains
majority.
 Company:
 It is a legal person hence can become a member of
another Co.
 It can invest money in another Co. only if authorized by
memorandum.
 It cannot be a member of itself.
 Subsidiary company:
 Cannot be a member of its holding Co.
 Any allotment or transfer of shares in a Co. to its subsidiary is
void but it doesn't apply where subsidiary is the legal
representative of a deceased member of the holding Co. and
the holding Co. is not beneficially interested under the trust.
 Partnership firm:
 Not the person in eyes of law cannot become member.
 Can purchase shares of a Co. in individual names of its
partners as joint shareholders.
 For that every partner is held liable jointly and severally for all
acts of the firm done
 Firm may be a member of NPO licensed under sec 25.
Foreigners:
 Can become members of Co.’s reg. in India but permission
of RBI has to be obtained.
 Right as a member will be suspended if he becomes alien
enemy.
Fictitious person:
 Is liable as a member.
 Besides, such person can be punished for impersonation
under section 38.
Insolvent:
 Cannot become a member.
 But if member becomes insolvent, he remains member as
long as his name appears in the register.
Minimum no. of Members[sec 3(1)]:
 In case of public: 7 or more
 In case of private: 2 or more
 In case of OPC: 1
Maintenance of minimum number:
 If the above requirement is not followed , every member who
know this fact will become liable to an unlimited extent for all
debts contracted by the Co. if business is carried beyond the
period of six months.
 It can also make the Co. liable to be wound up under sec 271.
Maximum no. of Members:
 In case of private:200
 In case of public: No limit
 In case of OPC: Though a pvt. Co. but limit of 200 doesn’t
apply.
Joint members:
 If more than one person jointly apply for and are allotted
shares in a Co., each one becomes a member.
 In this case joint holders can insist on having there names
register in such order as they may require.
Joint holders of share in a public co. are not single
members:
 For the purpose of determining whether the no. of
members of a Pvt. Co. doesn’t exceed 200 and for
determining the no. of members required for making
application under sec 241 & 242, joint holders are counted
as one.
Modes
of
Acquiring
Membership
1. Membership by subscription[Sec 2(55)]
A person subscribing to the Memorandum shall become a
member of the company on its incorporation and remains
so till the company accepts his surrender of shares or he
transfers shares.
Two conditions are necessary to make such a person as
member:
 He will subscribe his name to the MOA.
 The company must be register under the Companies Act.
2.Membership by qualification shares:
Directors of the co. on delivering to the registrar written
undertaking to take their qualification shares & to pay for
them become members of the Co., & they are in the same
position as if they were subscribers to the MOA.
3.Membership by application and allotment:
An application of shares may be absolute or conditional.
If it is absolute, a simple allotment and notice thereof to
the applicant will constitute the agreement.
If it is conditional, the allotment must be made on the
basis of the conditions specified.
4.Membership by transfer:
 Shares in a Co. are movable property & are
transferable according to AOA.
 A person can become member by acquiring shares
from existing member & by having the transfer of
shares register in the books of Co.
 He does not acquire the status of a member merely by
purchasing shares. His name need to be registered in
the register of members.
 If shares purchased by him are forfeited by the Co. , he
cannot challenge its validity.
5.Membership by transmission:
 It takes place on the death or insolvency of a member or if the
member in a Co. on its going into liquidation.
 In these cases no instrument of transfer need to be delivered to
the Co. If Co. refuses to accept , same remedies available as in
case of transfer.
 On the death of a member his shares vest in his legal
representative & he can sell shares without being registered,
but subject to the provisions of AOA he is entitled to be put on
the register of a member if he so chooses.
 The official assignee is likewise entitled to be a member in a
place of a shareholder who is adjudicated insolvent.
6.Membership by beneficial ownership:
Every person who holds equity share capital of a Co. and
whose name is entered as beneficial owner in the records
of depository, shall be deemed to be a member of the Co.
7.By acquiescence or estoppel:
If the name of a person has been entered in the Co.’s
register of members due to mistake or inadvertence of the
Co. & the person concerned does not object to it and holds
himself out as a member he shall be deemed to be a
member.
He can however escape liability by taking prompt action to
get his name removed from the register of members on
permissible grounds.
Termination
of
Membership
When members name is removed from the
register of members.
Termination of
membership
By act of the
parties
Operation of law
Cessation of membership by act of the parties:
 When a person transfer his shares, in such a case the
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transferor ceases to be a member as soon as the transferee
is registered, but not before.
When his shares are validly forfeited by the Co.
When a person makes a valid surrender of his shares to the
company.
When company sells the shares in exercise of its rights of
lien over them.
When he repudiates the contract on the grounds of false or
misleading statement in the prospectus of the Co.
When he is holding redeemable preference shares and
such shares are redeemed.
When share warrants are issued in exchange of the fully
paid up shares and the articles do not recognize holders of
share warrants as members.
Cessation of membership by operation of law:
 When he dies.
 When he is declared insolvent and the official assignee
either disclaims or transfers the shares.
 When the shares are sold in execution of a decree of the
court.
 When the Co. is wound-up.
Rights and liabilities of Members
Rights are divided into two categories (1) individual rights (2)corporate
membership rights
(1)Individual rights :
 to have the certificate of shares delivered or the certificate of stock issued
to him within the prescribed time.
 to transfer shares subject to restrictions in AOA.
 To end meetings of shareholders, receive proper notices & vote at the
meetings.
 To inspect the registers, indexes , returns and copies of certificates ,etc.
kept by the co. and to obtain extracts or copy thereof.
 To obtain copies of MOA & AOA on request and payment of the
prescribed fees.
 Right of pre-emption.
 To receive a copy of the statutory report.
 To have notice of any resolution requiring special notice.
 To obtain on request minutes of proceedings at general meeting.
 To remove directors by joining with others.
 To obtain a copy of P&L and B/S with auditors report.
 To participate in the appointment of an auditor or auditors at annual
general meeting.
 To receive a share in the capital of the co. and the surplus assets, if
any, on the co.’s liquidation.
 To participate in passing of a special resolution that the co. may be
wound up by the court or voluntarily.
 To participate in the appointment & in the fixation of remuneration of
one or more liquidators in the case of a members’ voluntary winding up
and to fill any vacancy in the office of a liquidator so appointed by
them.
Register of Members:
Section 88(1) of the companies Act requires every company to keep a
register of its members.
Particulars
which
must
appear
in
the
register
are
:
(a)
The
name,
address,
and
occupation
of
each
member;
(b) In the case of a company having a share capital, the shares held by each
member with distinguishing numbers. However, in case of shares held by
depository, distinguishing numbers are not necessary;
(c) Amount paid or agreed to be paid on these shares;
(d) The date on which any person ceased to be a member;
(e) The date on which each member’s name was entered in the register.
(f) If the shares have been converted into stock, and notice of conversion given to
the registrar, it will show the amount of stock held by each member.
In case of default in complying with these provisions, the company and every
officer of the company who is in default shall be liable to a fine up to Rs. 500 for
everyday during which the default continues.
Index of Members:
Section 88 requires every company having more than 50
members to maintain a register of members in an index form or
a separate index of the names of the members of the company.
All alterations in the register of members must be carried to
the index within 14 days.
Section 88 applies to all companies- public and private.
Where the total number of members including employee
members exceed 50,even a private company must keep an index
of members.
In case of non-compliance, the company and every officer who
is in default shall be liable to fine not less than Rs. 50000 but
which may extend to Rs. 3 lakh and where the failure is
continuous a fine of Rs. 1000 for everyday of default shall be
applicable.
Provisions
Relating
to
register
of
members
(1) Register and index of beneficial owners (section 88) maintained by a depository
under section 11 of the Depositories Act, 1996, shall be deemed to be a register and index
of members for the purpose of this Act.
(2) Location of the register of members and right of inspection. (Section 94) The
register and index of members must be kept at the registered office of the company
during
business
hours
or
not
less
than
2
hours
daily.
(3) Any body can make extracts from the register without fees. If any inspection or
making of the extracts is refused or copy required is not sent within the specified period,
the company and every officer is liable to a fine up to 500 day during which default
continues.
4) Power to close register with the company for a total period of 45 days in a year, but
not exceeding 30 days at any one time. Before such a register is closed, the company must
give at least 7 days previous notice by advertisement in the newspaper circulating in the
district in which the registered office is situated. In case of non-compliance the company
and every officer of the company shall be liable to a fine up to 5000 for everyday during
which the register is kept closed.
Contd…..
(5) Register prima facie evidence.(section 95) A person whose name
appears in the register, is deemed to be a member unless he proves that he is
not a member.
(6) Preservation of Registers etc. For disposal of and preservation of
registers
Companies
rules
1966
lays
down
that(a) Register o members commencing from the date of the registration of the
company is permanent and is not to be destroyed.
(b) Index of members is also a permanent record and is not to be destroyed at
any point of time.
(c) Register an index of debenture holders should be preserved for 15 years
till after the redemption of debentures.
(d) Copies of all annual returns and documents prepared under section 92
are to be reserved for 8 years.
Foreign Register:
A company may, if so authorized by its articles, keep in any
country outside India, in such manner as may be prescribed, a
part of the register referred to sub section (1), called “foreign
register” containing the names and particulars of the members,
debenture holders, other security holders or beneficial owners
residing outside India.
Rectification of Register:
Section 59 deals with an application before the Tribunal for rectification in
any one
of the following three circumstances:
(1) If the name of any person is entered in the register of members without
sufficient cause.
(2) If the name of any person after having been entered in the register, is
omitted
there from without sufficient cause.
(3) For refusal to register a transfer or transmission of shares without
reasonable
cause.
(4) Default is made or unnecessary delay takes place in entering in the
register the fact that a person has become a member or ceased to be a
member.
No Notice Of Trust:
A company is entitled to treat every person on the register of members as the
beneficial owners of shares, even if in fact he holds them on trust for
another.
For example, shares of which X is the real owner may be registered in the
name of Y. Here Y is the trustee and is the beneficial owner. In other words Y
holds the shares in trust of X. Now as the company’s register only shows the
name of Y hence Y alone is the member entitled to exercise the rights of a
shareholder and is bound by the liabilities of membership.
The object of this law are:
(a) To relieve the company from any obligation to take notice of rights of
third parties in respect of the shares registered in the names of any
members, and
(b) To preclude any person claiming an equitable interest in shares from
treating the company as a trustee in respect thereof.