2. 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.

3. 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.

4. 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.

5.  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.

6.  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.

7.  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.

8. 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.

9. 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.

10. Modes of Acquiring Membership

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. Termination of Membership When members name is removed from the register of members. Termination of membership By act of the parties Operation of law

17. Cessation of membership by act of the parties: When a person transfer his shares, in such a case the 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.

18. 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.

19. 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.

20.  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.

21. 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.

22. 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.

23. Provisions Relating to register of members 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.

24. 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.

25. 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.

26. 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.

27. 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.