The rights and obligations of the members of a company
Rights of members of the company
Rights of members of the company can be commented in the following three classes-
(1) Legal rights – Such type of rights are covered by this class which are held by the members of company under general law, e.g., rights related to contract or rights towards amalgamated institution etc.
(2) Documentary rights – These are such rights which are held by the members under memorandum and articles of, association.
(3) Statutory rights – These are such rights which cannot be altered by the company by amending its documents, e.g., right of share transfer held by the shareholders which are held by them under Section 82 of the Act.
The company concerned rights held by the members of company cannot be used collectively but are such rights which can be used independently and individually also.
Individual rights of the members – The following are the individual rights of the members-
(1) Right to obtain copies of memorandum and articles on request: Each member has got right to obtain copy of contract made with the memorandum of company, articles and manager etc. Likewise according to Section 113 of the Companies Act he is authorised to obtain certificate of share and he is having also the right under Section 116 to obtain proceedings and details of general meetings of the company.
(2) The members are having the right to obtain bonus
(3) Right of pre-emption – Under section 81 of copmany act if the company makes plan of increasing, its capital by issuing fresh shares then its members must be provided with preference of taking these shares because it is their such a statutory right which they can use it individually.
(4) Right to inspect the books (registers) of the company-Each member has got right to inspect registers or documents and records and to get the informations therein known
to himself also.
(5) Record to transfer the shares – According to Section 82 of the Act each member has got this right that he can transfer his shares as per the rules given in the articles.
(6) Right to share in surplus assets, if any, on the company’s liquidation – At the time of liquidation, each member has got right to obtain share in the ratio of his shares out of the balance assets of the company after distribution among its creditors.
(7) Right regarding meetings – All the rights related to the meetings of company are held by each member of the company. Likewise he can be a candidate for the post of director in the election of the company.
(8) Right to nominate for appointment of auditorAccording to Section 224 of the Companies Act, if the company has not appointed any auditor in its general meeting then its member can request the Central Government for appointment of auditor.
(9) Right to apply for appointment of liquidator- In case of winding-up willingly by the creditors of the company the members can present this request in the court that.liquidator be appointed for that company.
Collective rights of the member’s – Other than the above said individual rights the members of the company have got some collective rights also. These are explained in the board memorandum. These rights are such rights which cannot be used individually by the members. To facilitate the study, the collective rights of the members can be divided into three classes
a.Those rights which can be used by bare majority,
b.Those rights which can be used by a particular majority, and
c.Those rights which do not require majority but tan be used by a particular minority.
We can place people of the following rights in the collective rights-
(1) According to Section
169 of Companies Act, requesting the conductors of the company for calling ordinary meeting but like this calling the members the number most be 1/10 of total franchise or 1/10 of total paid capital amount.
(2) Requesting the Central Govt. for investigation of company’s matters.
(3) According to Section 284, right of suspending the conductor of the company by the collective resolution.
(4) Right of alteration in the board memorandum and articles.
(5) Right of conductors’ removal.
(6) Right of claim against the conductors.
(7) Right of research of the company.
(8) Right of demanding poll.
(9) Right of demanding election of the company collectively.
In case of public company, at least five members and in case of private company if the total number upto seven then one member and in case of more than seven then at least two members must be in favour of this demand. Generally, the courts do not accept such suits which are concerned with the internal ruling of the company. In case of Fons v/s Harhotal, 167 E; R. 187, it was assessed that for suit related to the internal disputes of the company any of the members can present the suit either individually or collectively.
Liabilities of members
Liabilities of members depend upon the form of company. These are various types of liabilities. According to Companies Act, memorandum, articles and resolutions Passed by the company the members have to bear different types of liabilities-
(1) Each member in the company having unlimited liabilities is fully responsible for payment of an debts taken during the period of membership.
(2) In case of winding-up in the company limited by security each member is bound to make payment of the assessed sum in the liability section in the board memorandum.
(3) The liability of each member, in the company limited by shares is limited upto the cost delineated upon his shares. Under Section 36(2) of the Act, each shareholder has to necessarily make payment in the same manner of the total payable amount of his shares as he shall do for the debts taken as individually.
(4) Even while transferring the shares the shareholder shall be held responsible for payment of the payable amount till the name of other party is not endorsed in the register of members of the company.
(5) In case of winding-up of the company his liability shall remains continually effective upto one year from the date of winding-up.