Member in a company

Most of the students of Company Law are having this feeling that the words member and shareholder are synonyms to each other. Generally both these words are used for each other but from the point of view of law it is not right.

There is a minor difference between these both. Firstly the shareholder is not accepted as member of the company until his name is not endorsed in the register of members of the company. Secondly, no shareholder happens to be in a company having liability limited by guarantee. The persons who establish the company and whose names are endorsed in the register of members of the company, are accepted as its members.

Member and membership of Company- The following definition of member is given in Section 41 of the Companies Act, 1956- “The persons who sign the board-memorandum of a company are accepted as members of the company and after registration of the company, their names are maintained in the, register of members like the names of members.” [Section 41(1)]

The signs presented in the above said definitions of member are called as tests of membership.

Tests of membership- According to Section 41 what- ever signs come to light in the definition of member, these can be presented given as under –

(1) Membership by memorandum – This is the last chapter therein through which some persons sign it and their names are endorsed in the register of members.

(2) Membership by application – The persons who have submitted applications for purchasing qualifying shares and this proposal has been accepted by the company. In existence of proposal and acceptance only contract is made between company and the individual in respect of shares and then that person is accepted as member of the company.

(3) Membership by transmission or transfer of shares- A person can become a member after promising for
obtaining shares by entrance in a company. Share is a movable property he can purchase this in the market.

(4) Membership by consent to legal successor – A person can become member even by obtaining shares of an expired or insolvent member as successor.

(5) Membership by ‘implied acceptance’ or ‘doctrine estoppels’ – A person is accepted as a member of the company if he is having no objection for maintaining his name in the register of company. If by mistake name of some one is endorsed in the register of company and such an individual gives his consent for maintaining his name in the register, then the liability of such person becomes like a member. The intention of the above said description is this that a person is accepted as member according to implied acceptance or doctrine of estoppel.

In all these cases a person shall not become member until his name is not endorsed in the register of members.

Membership in-efficiency- An immature or a mental person cannot become member of the company because membership produces a contract and according to the Indian Contract Act an immature or mental person is not capable for contract though allotment of shares can be made in the name of an limmature but his successor’s name is endorsed in the members’ register. Being immature he does not have any liability. After becoming mature, if he is willing then he can resign the membership or on remaining as member he is supposed to have liabilities like other members.

Difference between member and shareholder – There are following differences between member and shareholder-

(1) Shareholder is that person who holds shares but member is that person whose name is endorsed in the register of members.

(2) Though the shareholder is the owner of shares but he does not hold the post of member but the members have got both, the ownership of shares and the position of membership.

(3) In case of death or insolvency of a shareholder his representative immediately becomes the shareholder of the company whether his name is not endorsed in the register of members but in case of death or insolvency of member of the company, his legal successor does not get membership automatically, but for having membership, application is necessary to be submitted by him to the company.

(4) The bearer of that share warrant cannot be included in the members of the company which is issued by the company under Section 144, it means that though the bearer is owner of share having share warrant but normally he is not a member. [Section 2(27)]

Cessation of membership – Membership of company terminates in the following conditions-

(1) Because of forfeiture of Shares- If the share holder, on call, does not pay the unpaid amount towards the shares held by him and even after Warning by the company in this regard does not make any effort then the directors by a resolution can forfeit his shares and can terminate his membership.

(2) Because of transfer of shares- If a shareholder transfers his share to some one else and gets the name of transferee endorsed in the register of members then the transferor shall not remain as a member of the company and his membership shall be treated as terminated.

(3) Because of his death or if adjudicated insolvent -In case of death of a member or adjudicated insolvent his membership in the company automatically terminates.

(4) Because of valid surrender of his share-Sometimes the present shareholders of the company who become unable to make payment of unpaid amount of their shares even on call, return their shares to the company and thus they separate themselves from the membership of company.

In case of surrender of shares, company itself shall ensure that whether the surrender of shares by the present member is not being done to save himself from the liability towards the company.

(5) If the redeemable preference shares are redeemed- If a present member of the company is holding the redeemable shares of the company then after uncanalising these shares he shall be deprived of the membership of company.

(6) If he rescinds the contract of membership-If the present member of the company proves in court the charge of false statement in the prospectus against the company and on this basis he does not accept membership of the company then he shall git rid of membership of the combut the members who have signed the memorandum of the company cannot get rid of company membership by getting this agreement cancelled.

(7) When the company is being wound-up-If a company has been wound-up, then its members shall get them selves relieved from membership of the company, but it does not mean that they shall be relieved from liability of share holders.

(8) If his shares are sold by the company – If the shares of a member are sold by the company to some other person then that buyer’s name is endorsed in place of that member. Thus that member shall become free of membership of the company.

(9) If his shares are purchased by order of court – If, under Section 402, some other member of the company or company itself purchases the shares of an individual as per order of the court, then that member loses the membership of company.