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Membership in a Company

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Membership in a Company

By definition, the term “Member” in relation to a company means, one who has agreed to become the member of the company by entering his name into the ‘Register of Members’. Every person who has agreed in writing to become a part of the company and also holds shares of the company is considered the ‘Member of the Company’ and is said to hold membership in a company. The name of the member of the company is entered as ‘Beneficial owner in the record of depository’.

In order to acquire the membership of the company, the following two elements must be presented:

  • An Agreement to become a member.
  • Entry of the name of the person so agreeing, in the Register of members of the company.

The enlisted person should be in a capable of entering into a contract with the company. But a bearer of share warrant is not a member of the company. Finally, to become the registered member of the company the person should be satisfactory as an asset to the company.

Difference between Member & Shareholder

MATTER Member Shareholder
Meaning A person whose name is entered in the register of members of a company. A person who owns the shares of the company.
Definintion Companies Act, 2013 defines ‘Member’ under section 2(55) Shareholder is not listed under the Companies Act, 2013
Share Warranges The holder of the share warrant is not a member. The holder of the share warrant is a Shareholder.
Company Every company must have a minimum number of members. The Company limited by shares can have shareholders
Memorandum A person who signs the memorandum of association with the company becomes a member. After signing the memorandum, a person can become a shareholder only if shares are allotted to him.

Modes of Acquiring Membership

Acquiring a membership in a company requires many processes and modes. The following are the modes of acquiring membership in a company:

Subscribing to MOA

  • If a person agrees to sign the memorandum and pledge his presence on the board of members, he becomes the member of the company.
  • Names of the people who have agreed to join the membership of the company should be entered in Register of Members.
  • Along with the agreement, if they’ve agreed to share the company’s shares they become the Shareholders of the Company.

Agreement in Writing

  • A person would become the member of the company if he ‘agrees in writing’ and gets his name entered in the register of members of the company.
  • A shareholder would also become a member of the company if he ‘agrees in writing’, and by the following methods:
    • By transfer of shares
    • By transmission of shares
    • By Estoppels (Membership Without sufficient Cause).

Holding Shares

A person becomes a member of the company if his name is entered as a beneficial owner of the records of the depository and also holds equity share capital of the company. In such cases, the person needn’t apply ‘in writing’ to become a member of the company.

Removal of Membership

The term ‘Cessation’ means ‘Termination’. Just as there’s a process to add a member of the company, there’s a process to terminate that member. Terminating a member of the company can result in removal from the ‘Register of Members’. The following are the modes of removing a member of the company:

Transfer of Membership

  • Here, the shares of a member are transferred to another person by the company in the name of the transferee.
  • The name of the transferor is removed from the Register of Members.
  • After transferring all the shares from the person to another person, the person is legally removed from the company.

Transmission of Membership

  • On the death of a shareholder/member of the company, his/her legal heir or representative becomes a member.

Surrender of Membership

  • A person is removed from the membership once he/she surrenders his shares, which requires ‘Acceptance on part of Board’.

Forefeiture of Membership

  • On account of Loss or selling of a share, the member is terminated from the company.

Share Buy Back

  • The person is terminated from the company if the company buys back its shares.

Liabilities of Members

A ‘Liability’ is a state of being legally responsible for something. This term is usually used in an organization to emphasize the responsibilities of a member of the company. The following are the liabilities of the member of a company:

  • To make shares if he/she is allotted as per the Act.
  • To pay call money or pay the due amount of shares.
  • To abide by the decision of majority when they act ‘bonafide’.
  • To contribute to the Asset of the company in case of winding up and when the shares are partly paid up.