Introduction
A company, in the eyes of law, is a separate legal entity — distinct from its members. However, a company cannot exist in isolation; it requires individuals or entities to form, manage, and own it. These individuals or institutions are called members or shareholders of the company.
The concept of membership of a company lies at the core of corporate law, as members are the true owners who contribute capital, enjoy profits, and exercise control through voting rights. The Companies Act, 2013, governs all matters relating to the admission, rights, duties, and cessation of membership in India.
Meaning and Definition of Member
Statutory Definition (Section 2(55) of the Companies Act, 2013):
According to Section 2(55), a “member” in relation to a company means—
Every person who agrees in writing to become a member of the company and whose name is entered in the register of members;
Every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository;
Every subscriber to the Memorandum of Association (MOA) shall be deemed to be a member of the company and on its registration, shall be entered as such in the register of members.
Simplified Meaning:
A member is a person who:
Has agreed to become a member,
Holds shares in the company, and
Whose name appears in the Register of Members or in the records of the Depository (in case of dematerialized shares).
Who Can Become a Member
Membership is open to all persons competent to contract under Section 11 of the Indian Contract Act, 1872, unless specifically prohibited by law or by the Articles of Association.
Eligible Members:
Individuals (above 18 years and of sound mind)
Body Corporates (companies, statutory corporations, etc.)
Firms (through partners jointly) – although not separate legal entities, partners may jointly hold shares.
Cooperative Societies
Trustees or Executors (for estate holdings)
Foreign Nationals and Companies, subject to FEMA and RBI regulations.
Minors – cannot become members in their own name, but shares may be held through lawful guardianship (case-to-case basis).
Who Cannot Become a Member
Minor (directly) – being incompetent to contract.
Insolvent persons – cannot hold shares in their name.
Firms (as firms) – since a firm is not a legal entity separate from its partners.
Companies without authorization in their memorandum or articles.
Fictitious or non-existent persons.
Modes of Acquiring Membership
Membership can be acquired through various lawful means. The most recognized modes under Indian company law are:
1. By Subscription to the Memorandum of Association
Every person who signs the Memorandum of Association (MOA) at the time of company formation automatically becomes a member.
→ This is known as deemed membership, as no further application is needed.
2. By Application and Allotment
When a person applies for shares in a company and the company accepts the application and allots shares, membership arises.
→ Both acceptance and entry of the name in the Register of Members are essential.
3. By Transfer of Shares
Shares are movable property under Section 44 of the Companies Act, 2013.
A member can transfer his shares to another person by executing a transfer deed, after which the transferee becomes a member once his name is entered in the Register of Members.
4. By Transmission of Shares
When shares pass to another person by operation of law (e.g., on death, insolvency, or succession), it is called transmission.
No transfer deed is necessary. The legal heir or representative becomes a member after registration.
5. By Nomination
Under Section 72, a member can nominate a person to whom his shares will vest in case of his death.
The nominee becomes entitled to the shares and can become a member upon request.
6. By Acquiescence or Estoppel
If a person allows his name to be used in the Register of Members knowingly, or acts in a manner that implies membership, the law may treat him as a member by estoppel.
Cessation of Membership
Membership may end in several ways, either voluntarily or by law:
By Transfer of Shares – when shares are validly transferred and registered in the transferee’s name.
By Forfeiture of Shares – for non-payment of calls or breach of terms.
By Surrender of Shares – voluntary return (allowed only if permitted by Articles).
By Death of Member – shares transmit to legal heirs.
By Insolvency – shares vest with the official assignee or liquidator.
By Redemption of Preference Shares – after repayment, the holder ceases to be a member.
By Winding Up of the Company – once dissolved, all memberships end.
By Rescission of Contract – if allotment or subscription is void.
Rights of Members
Membership confers certain rights, which may be statutory, contractual, or general in nature.
1. Right to Receive Notice and Attend Meetings
Every member has the right to receive due notice of general meetings and to attend them either personally or by proxy.
2. Right to Vote
Voting rights depend on the type and number of shares held.
Equity shareholders have voting rights on all matters.
Preference shareholders have restricted rights, mainly on matters affecting their interests.
3. Right to Dividend
Members are entitled to receive a share in the profits of the company when dividends are declared.
4. Right to Transfer Shares
Under Section 44, shares are freely transferable in a public company (subject to the Articles).
5. Right to Inspect Registers and Documents
Under Section 94, members can inspect statutory registers, balance sheets, and annual returns.
6. Right to Copies of Memorandum and Articles
Members can obtain copies of the MOA and AOA on payment of prescribed fees.
7. Right to Participate in Profits and Assets
In case of winding up, members have a right to a share in the remaining assets after all liabilities are paid.
8. Right to Apply for Rectification of Register
Under Section 59, if a member’s name is wrongfully entered or omitted, he may apply to the Tribunal (NCLT) for rectification.
9. Right to Take Legal Action
Members can bring action for:
Oppression and Mismanagement (Sections 241–242)
Class action suits (Section 245)
Derivative actions on behalf of the company
Liabilities of Members
The liability of members depends on the type of company:
1. Company Limited by Shares
Liability is limited to the amount unpaid on their shares.
2. Company Limited by Guarantee
Liability is limited to the amount they agree to contribute in the event of winding up.
3. Unlimited Company
Liability is unlimited — members must contribute to all debts and obligations.
4. Before Incorporation
Subscribers are liable to pay for their subscribed shares once the company is registered.
5. In Case of Fraud
Under Section 339, if a company is carried on with intent to defraud, members or directors involved can be made personally liable.
Register of Members
Statutory Requirement (Section 88)
Every company must maintain a Register of Members containing:
Names, addresses, and occupations of members,
Number and class of shares held,
Date of becoming and ceasing to be a member.
The register serves as conclusive evidence of membership.
Inspection:
Open to members free of cost during business hours.
Non-members may inspect on payment of prescribed fees.
Distinction between Member and Shareholder
Basis Member Shareholder
Meaning Person whose name is in the register of members Person who holds shares in a company
Existence May exist without shareholding (in guarantee companies) Exists only in companies limited by shares
Entry in Register Must be entered Not always necessary (in depository system)
Ownership Has ownership rights Has investment rights
Example Subscriber to MOA before allotment Investor buying shares in the market
Note: Every shareholder is a member, but every member is not necessarily a shareholder.
Termination of Membership
A person ceases to be a member when:
His name is removed from the register,
He transfers his shares,
His shares are forfeited,
He dies,
His shares are sold to recover debts,
The company is wound up.
After termination, he loses all rights and duties as a member.
Nominee and Beneficial Ownership
Under Section 72, a member can nominate someone to inherit the shares.
Under Section 89, beneficial ownership (the real owner) must be declared even if the shares are held in another’s name.
Case Laws on Membership
1. Official Liquidator v. P.A. Tendolkar (1973)
Held that members cannot be held liable for company’s debts unless fraud is proved.
2. Borland’s Trustee v. Steel Bros & Co. Ltd. (1901)
Defined shares as a bundle of rights and obligations between the member and the company.
3. Dale and Carrington Investment v. P.K. Prathapan (2004)
Reiterated that allotment of shares must be bona fide; fraudulent allotment can invalidate membership.
4. Re. Gilt Edge Safety Glass Ltd. (1940)
Established that mere name entry without consent does not make a person a member.
5. Bajaj Auto Ltd. v. N.K. Firodia (1971)
Held that directors must exercise power to refuse transfer of shares in good faith and for the company’s benefit.
Membership in Different Types of Companies
Private Company: Minimum 2 and maximum 200 members (excluding employees).
Public Company: Minimum 7 members, no upper limit.
One Person Company (OPC): Only one member.
Guarantee Company: Members contribute to liability during winding up.
Role of Members in Corporate Governance
Members play a crucial role in:
Electing the Board of Directors,
Approving financial statements and auditor appointments,
Making key policy decisions through resolutions,
Ensuring corporate accountability and transparency.
Thus, while directors manage the company, the ultimate control rests with the members through general meetings.
Recent Developments
With the introduction of Dematerialized Shares and Depositories Act, 1996, the concept of membership has evolved:
Beneficial owners in depositories are recognized as members.
Register of Members can be maintained electronically.
Digital voting (e-voting) has empowered shareholders globally.
Conclusion
Membership is the foundation of corporate existence. A company may be an artificial person, but its life and activities are driven by its members.
Members bring in capital, elect directors, and participate in decision-making, making them the true backbone of the corporate structure.
Under the Companies Act, 2013, the law strikes a balance between members’ rights and responsibilities, ensuring fairness, transparency, and accountability.
In essence, while directors steer the company, the members remain the real owners — the soul of the corporate body
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