Membership of a Company

Introduction 

Section 2(55) of the Companies Act, 2013 defines a member of a company to include: 

• Subscribers to the Memorandum of Association, 
• Every person who agrees in writing to become a member and whose name is entered in the register of members. 
• Every person holding shares whose name is entered as a beneficial owner in the records of a depository. 

While the terms "member" and "shareholder" are commonly used interchangeably, they are not always synonymous — a transferee of shares does not become a member until the transfer is registered and his name is entered in the register of members. 

Two essential conditions must be satisfied before membership is recognised: 

• Agreement to become a member. 
• Entry of the person's name in the register of members.

Modes of Acquiring Membership 

• Subscription to the Memorandum: A subscriber to the Memorandum is deemed to have agreed to become a member upon incorporation, without any requirement of application or allotment. He is ipso facto a member from the date of incorporation and cannot rescind the contract even on grounds of fraud by promoters. 
• Agreement in Writing, which may occur through: 
  • Application and allotment of shares. 
  • Transfer of shares, upon registration of such transfer in the register of members 
  • Transmission of shares by operation of law, such as upon the death of a member, where no instrument of transfer is required. 
  • Acquiescence or estoppel, where a person knowingly allows his name to remain on the register without objection. 
• Beneficial Ownership under the Depositories Act, 1996: A person holding shares and entered as a beneficial owner in the records of a depository is deemed to be a member of the company.

Who May Become a Member 

Any person who is sui juris — competent to contract — may become a member, subject to the Memorandum and Articles. Notable positions include: 

• Company — May become a member of another company if authorised by its Memorandum, but cannot become a member of itself. 
• Limited Liability Partnership — Being an incorporated body, can hold membership in a company. 
• Section 8 Company — May invest in shares of another company if its Memorandum permits. 
• Foreigners — May acquire membership subject to the provisions of FEMA, 1999. 
• Minor — Being incompetent to contract, cannot ordinarily become a member; however, transfer of fully paid shares to a minor cannot be refused, though the transferor remains liable for future calls. 
• Insolvent — May remain on the register but loses beneficial interest in shares, which vests in the Official Assignee.  
• Trade Union — May hold shares in its own corporate name. 
• Partnership Firm — Not being a legal person, cannot become a member except in a Section 8 company. 
• Holder of GDRs — Not a member unless the Global Depository Receipts are redeemed into underlying shares.

Cessation of Membership 

A person ceases to be a member upon removal of his name from the register of members, which may occur in any of the following situations: 

• Transfer and registration of shares in another person's name. 
• Forfeiture of shares by the company. 
• Death of the member (though his estate remains liable for calls). 
• Adjudication of insolvency. 
• Redemption of redeemable preference shares. 
• Rescission of the contract on grounds of fraud or misrepresentation. 
• Purchase of shares under a Tribunal order under Section 242. 

Cessation of membership does not extinguish liability as a contributory. Further, a company cannot insert any provision in its Articles of Association empowering the Board of Directors to expel a member — any such clause is illegal and void.

Rights of Members 

Members enjoy both individual and collective rights, including: 

• Right to receive abridged financial statements, auditor's report, and notices of general meetings. 
• Right to inspect statutory registers and obtain copies thereof. 
• Right to attend general meetings and exercise voting rights personally or through proxy. 
• Right to transfer shares. 
• Right to receive dividend when declared. 
• Right to apply for rights shares under Section 62. 
• Right to appoint directors under Section 152. 
• Right to nominate a person under Section 72 to whom securities shall vest upon death. 
• Right to share surplus assets on winding up under Section 320. 
• Right to apply collectively to the Tribunal for relief against oppression and mismanagement under Section 241. 
• Right to file class action suits before the Tribunal under Section 245.

Conclusion 

The concept of membership lies at the heart of company law, defining the relationship between an individual and the corporate entity. The Companies Act, 2013 carefully regulates the modes of acquiring and losing membership, the categories of eligible members, and the rights that accompany membership — ensuring accountability, transparency, and the protection of individual interests within the corporate framework