MEMBERSHIP

A person is a member of a company if the subscribes to the memorandum of

association of a company and upon registration his name entered in the register of
members. Members are also called cooperators or shareholders.
A shareholder is a person who holds shares in a company while a member is one
whose name appears in the register of members.
The terms members and shareholders are used synonymously specifically in the case
of a company limited by guarantee and having a share capital and unlimited company
whose capital is held in definite shares. There are circumstances where a person may
become a member of a company without being its shareholder without being a member.
The following are instances where a person becomes a member without being a
shareholder of the company.
1. In the case of companies limited by guarantee or unlimited companies, because
such companies may not have share capital.
2.

A deceased member continues to be a member as long as his name is on the

register of members, but he cannot be a shareholder of the company.

3.

A transferor of shares continues to be a member until the transfer is registered

and the name replaced.

4.

Subscribers to the memorandum are treated as members by the fact of

subscription on registration of the company they are entered in the members register
even before they are allotted any shares.
The following are instances where a person becomes a shareholder of a company
without being its member.
a) A person who holds a share warrant.
b) A transferee or legal representative of deceased or insolvent member is not a
member until his name appears in the register although he is a shareholder.
Modes of acquiring membership:
Section 28 of the companies act provides that a person may become a member of a
company by: a) Subscription to the memorandum:
1

Subscribers to the memorandum are deemed to have agreed to become members. The
names are entered in the register of members upon registration of the company.
In official liquidation vs. Suleman Bhai, S subscribed to a companys memorandum for
two hundred shares, but actually took 20 shares. It was held that he was liable in the
winding up of the company for all the 200 shares, as he became a member by the very
fact of subscription.
A subscriber to the memorandum cannot rescind the contract to take shares on the
ground of misrepresentation made by a promoter (metal constituents Ltd, Re Lord
Lurgens case (1902) Ich 707 because: i) By his name act he brought the company into existence.
ii) The company could not appoint an agent before it came into existence and it is
therefore not liable for the promoters act.
iii) By signing the memorandum he became bond as between himself and the company
and also between himself and other persons who became members.
b) Agreement and registration:
Every person who agrees in writing to become a member and whose name is entered in
the register of members is a member of the company. Registration of a name as a
member of a company may be obtained through: 1. Application and allotment.
An application for shares is an offer to take shares; allotment is acceptance of that offer
by the company, which creates a binding contract between the applicant and the
company. An application may be absolute or conditional. If conditional the allotment
must be in accordance to the terms of the application (Aldborough Hotel Co. Re.
Simpsons case (1986) 4 ch. 484).
2. Transfer.
One becomes a member when the transfer of shares is affected and his name is
entered in the register of members.
3. Succession.

The company has power to register any person as a shareholder to whom the right to
any shares (or debentures) in the company has been transmitted by the operation of
law, and in such a case an instrument of transfer is not necessary.
c) Qualification shares:
Before one is appointed a director of a public company, he must take or sign an
agreement to take and pay for qualification shares (if any) in which case he is in the
same position as a subscriber to the memorandum.
d) Estoppel:
Any one who allows his name to remain in the register of members or otherwise holds
himself out or allows himself to be held out as a member is estopped from denying
being a member of the company.
CESSATION OF MEMBERSHIP
A person ceases from being a member once his name is removed from the register. A
shareholder may cease from being a member of a company by: 1. An act of the parties.
2. Operation of law.
1. Act of parties.
The following are instances where a person may cease to be a member through act of
parties: a) If one transfers his shares to another.
b) If ones shares are forfeited.
c) If the company sells the persons shares under a provision in the articles.
d) If one rescinds the contract to take shares on grounds of misrepresentation.
e) If redeemable preference shares are redeemed.
f)

If one surrenders his shares, if such is permitted by articles.

g) If share warrants are issued in exchange of fully paid shares.

3

2. Operation of law.
One may cease membership through operation of law in any one of the following ways:a) Insolvency shares of insolvent vest in the official receiver or assignee.
b)

Death shares of the deceased are vested in the legal representative,

however the deceaseds estate remain liable as long as the name of the deceased
is in the register.
c) Sales of shares in execution of a court decree.
d) Winding up of a company.

Rights and liabilities of members.

Rights of members.
The rights are conferred either by companys act, the memorandum and articles of
association or by the general law. Rights conferred by the companies act are called the
statutory rights. The following are statutory rights: (1) Right to obtain copies of the memorandum and articles on request and on
payment of the prescribed fee.
(2) Right in priority to have shares offered incase of increase of capital.
(3) Right to transfer shares.
(4) Right to vote on resolutions at meetings of the company.
(5) Right to apply to court to have any variation of his rights set a side by the court
section 7 (4).
(6) Right to have a share certificate for shares held.
(7) Right to inspect register of members, register of debenture holders and copies
of annual return.
(8) Right to receive a copy of the statutory report.
(9) Right to apply to the BOD to call an annual general meeting when the company
fails to call such a meeting.
(10)

Right to receive notice of meetings, attend and vote at meeting.

(11)

Right to appoint a proxy and inspect proxy register.

4

(12)

Right to demand poll alone or with others.

(13)

Right of a body corporate to appoint a representative to attend and vote at

the general meetings.

(14)

Right to require the company to circulate resolution.

(15)

Right to have any request minutes of proceedings of a general meeting.

(16)

Right to receive dividends when declared.

(17)

Right to receive copies of annual accounts of the company with the auditors

report.
(18)

Right to participate in the appointment of directors and auditors in the annual

general meetings.
(19)

Right to petition to the court for the winding up of the company.

(20)

Right to share surplus.

The rights conferred on members by memorandum of association are called

documentary rights, while rights conferred on members by the general law are called
legal rights.
Liability of members
Liability of members depends on the nature of the nature company. Liability may be
summarized as follows: 1. for unlimited companies each member is liable in full for all the debts contracted
by the company during the period he was a member.
2. In case of limited by shares each member is liable to pay the full nominal value
of the shares held by him.
3. For a deceased member, his estate is liable in respect of partly paid shares and
where the shares have been registered to the name of representatives they become
liable.
4. When one (a member) is adjudicated bankrupt, the official receiver may sell the
partly paid shares in which case the buyer becomes liable thereof or he may
disclaim them as onerous property.
5.

When membership is reduced below seven and two for public and private

companies, every member aware of the fact becomes severally liable for the
5

payment of debts of the company after six months of trading from such reduction in
number.
6.

For companies limited by guarantee each member is liable to contribute the

amount guaranteed by him to be paid in the event of winding up.

Register of members.
Section 112 requires every company to maintain a register with the following
particulars:a) The name and address of each member.
b) For a company with share capital, shares held by each member distinguished
each share by its number and extent to which the shares have been paid up.
c) The date each person was entered in the register as a member.
d) The date on which any person ceased to be a member.
Where the company has converted any of its shares into stock a notice of the
conversion has to be given to the registrar. If default is made in maintaining the register,
the company and every officer in default shall be liable to a default fine.
Section 114 provides that on issue of a share warrant, the company must strike out of
the register, the name of the member because of the issue of the share warrant he
ceases to be a member in which case the following particulars should be entered in the
register: a) The fact of the issue of the warrant.
b) Statement of the shares included in the warrant
c) Date of issue of the warrant
Index of members.
Section 113 states that every company with more than fifty members is required to keep
an index that may be in the form of a card index. The index should be kept where the
register is kept. Any alteration in the register should be noted in the index within
fourteen days. Failure to comply with any of the above may attract a fine.
Location of the register.
6

Section 112 (2) requires that the register must be kept at the companys registered
office. It may be kept elsewhere provided.
a) The work of making it up is done at another office.
b) The register is prepared by another person.
Inspection of register of members.
Inspection of the register of members and debenture holders is open to the public for at
least two hours a day.
Inspection is free for members and a fee of Ksh 2 is charged for every inspection. The
right to inspect includes the right to make extracts from the register. A fine of Ksh 40 is
imposed for refusal to inspect or refusal to supply extracts. The object of inspecting the
register is immaterial. Extracts have to be supplied within fourteen days upon receipt of
the demand.
The right to inspect ceases upon the commencement of winding up and an order of the
court must be obtained if inspection is required after that date.

Closure of register of members.

Under section 117 a company can close a register for 30 days after an advertisement in
a local daily. Closure is usually done prior to payment of dividends or issue of new
shares.
Rectification of register of members
Section 118 provides that courts can order rectification of register of members in the
following cases: a) Where ones name is entered or omitted from the register of members without
any sufficial cause.
b) Where default is made or unnecessary delay take place in entering on the
register the fact that any person having ceased to be a member. Courts may
require companies to pay damages to the aggrieved person.

No notice of trust on register.

Section 119 states that no notice of any trust express, implied or constructive, shall be
entered on the register of members or debenture holders.
The trustee can be entered in the register in his personal capacity and not as a trustee,
and he will exercise the rights of a shareholder, and is alone liable for shares calls and
to be put in the list of contributories.
Branch register.
Section 121 a company carrying business outside Kenya in any part of the
commonwealth countries may keep a branch register in that part.
Notice must be given to the registrar of the situation of the office where a branch
register is kept within one month of the opening of the office and any change in its
situation or discontinuation of such a register.
A branch register is deemed to be part of the companys register of members.
Annual return.
Section 125 provides that every company with share capital must file an annual return
with the register once in every year. The return must be filed with the registrar forty two
days after the annual general meeting (sec. 127).
The following particulars must be included in the annual return in accordance to part of
the fifth schedule.
1. The address of the registered office.
2. The place where the register of members or debenture holders is kept is not
kept at the registered office.
3. Summary distinguishing between shares issued for cash and shares issued as
fully paid or otherwise than in cash specifying.
a) Amount of share capital and the number of shares.
b) The number of shares taken up to date of the return.
c) The amount called up, received and unpaid.
d) Commission and discount in respect of shares or debentures.
e) The total number of shares forfeited.
8

f)

Total amount of shares for which share warrants are outstanding, the

number of shares compared in each warrant and the amount of share

warrants issued and surrendered since the last return.
4. The total amount of indebtedness in respect of all registrable charges.
5. A listing containing: a) The names and addresses of those who are members on the fourteenth
day after the annual general meeting and those who have ceased to be
members since the date of the last return.
b) The number of shares held by each member.
c) Particulars of the directors and the secretary.
Section 125 (1) if the company has converted its shares into stock, the return should
give the same particulars with regard to the stock as required for shares.
Section 126 for a company with no share capital, the following facts should be included:
a) The situation and the postal address for the registered office.
b) The address of the place if the register of member is kept elsewhere.
c)

The address and place if the register of debenture holders is kept

elsewhere.
d) Particulars relating to directors and the company secretary.
A statement containing the particulars of the total amount of in indebtness of the
company in respect of all charges which are or were required to be registered with the
registrar under the act.
Documents to be annexed to annual return.
Sec 128(1) the following documents must be annexed to the annual return.
a) A copy of the balance sheet with all notes thereto duly certified by a
director a or company secretary.
b) A copy of auditors report and directors report certified by a director and
company secretary.
Section 156(1) the profit and loss account and group account should be annexed to the
balance sheet.
9

Section (129) requires that also a private company must also submit with annual return
the following certificates:a)

The company has not invited the public to subscribe its shares or

debentures.
b) Any excess of fifty members consists of entirely present and ex-employees.

10