Membership to a Company

Section 32 of the Companies Act 1994 defines member as—"subscribers to the

memorandum and every other person who agrees to become a member and whose
name is entered in the share register shall be deemed to be a member of the
company."
The shareholders of a company limited by share are known as member. For other
companies the members though they are members of the company but they are not
shareholders. So a shareholder is also a member but a member is not always a
shareholder. The distinctions between shareholder and member are as follows-
1. Members of those companies which have share capital are also known as
shareholder.
But members of companies which do not have share capital are known as
'member'.
2. The shareholders are related to the company by their shares. But members are
related to the company in other ways, for example, by contribution or by
promotion, etc.
3. The legal heir of a deceased shareholder inherits the status of shareholder
automatically, but for membership, his name must be inserted in the Register of
members.
4. All shareholders are members but all members are not shareholders. The
members of companies limited by guarantee or unlimited companies are not
shareholders, only members.
Modes of acquiring membership:
A. By subscription into the memorandum
B. By agreement and Registration
i. By allotment of shares
ii. By transfer of shares
iii. By transmission of shares
iv. By conduct
A. By Subscription into the memorandum:
Section 32 provides that every subscriber to the memorandum shall be deemed to
have agreed to become members of the company and on its registration his name
shall be entered in the Register of members. His liability will be according to the
shares he has subscribed into the memorandum not according to his payment.
Case Reference: Official Liquidator vs. Soleman Bhai - 1955
“S” had subscribed for 200 shares and the company was duly registered but
ultimately ,he took only 20 shares and paid for 20 shares. He was hold liable for
200 shares at the time of liquidation.
B. By Agreement and Registration:
According to section 32(2) of the Companies Act 1994, “Any person who agrees to
become a member of the company and whose name is entered into the Register of
Members shall be members of the Company."
In such case two conditions must be fulfilled-
1. Until and unless his name is entered into the Register of members, he is not a
member. (Nicole's Case - 1855)
2. The persons who simply agree to present the shares to the public, like
underwriter or broker, are not members of the company unless they agree to be so.
(Re Monarch Insurance Co. 1973)
i) By Allotment of shares: A person can become a member by application of
allotment. He will be considered member when he is allotted with shares,
notice of acceptance is given to him and his name is entered into the
Member's Register.
ii) By Transfer of Shares: Under section 30 of the Companies Act 1994,
share is a movable and transferable property and therefore by a valid
transfer the transferee becomes the member of the company. But his
membership is confirmed by the entry of his name into the Member's
Register.
iii) By Transmission: In case of death of a shareholder, his legal
representative or heir and in case of insolvency of a shareholder, his
trustee, after entering their name into the Register of Members, become
member of the company by transmission.
 iv) By Conduct: Any member, who permits to keep his name into the
Register of Members even after the transfer of his share, is, by conduct a
member of the Company.
Who may be a member:
1. Minors and Persons of unsound mind: Minor, though not competent to
contract, may be a beneficial member of the company which signifies that he will
incur no liability. On attaining majority ,he can repudiate the contract of share
within reasonable time and therefore terminate his membership. But if he does not
repudiate the membership within reasonable time and acknowledges his
membership by conduct, his position is automatically accepted and his liability
commences.
Case Reference: Fazulbhoy Jaffar vs. Credit Bank of India - 1914 An infant was
registered as a member. After attaining majority, he received dividends. So, by
conduct, he continued to be member and his liability begins.
A person of unsound mind has the same position as the minor.
2. Company: A company, being a legal person, can be a member of another
company if permitted by memorandum. B a company cannot buy its own share or
the share of its holding company.
3. Bankrupt: Unless the Article provides otherwise, the name of the bankrupt may
remain in the Register of Members. He may vote in the general meeting but
according to the directions of his trustee and notice of meeting shall be served to
the trustee, not to the bankrupt.
4. Broker and Underwriter: They only represent the shares to the public, so they
are not members. But if they accept the shares from the company as members and
enter their names into the Register of Members, they will be considered members.
5. Creditors: Normally creditors are not members of the company. But persons
lending money to the company in exchange of shares as securities shall be
members if their names are entered into the Members' Register.
Case Reference: Re Patent Paper Manufacturing Co. Ltd. 1870
'A' took 100 shares valuing £5 each to lend £500 to the company on the condition
that shares will be returned if the loan is repaid on one month notice. The loan
was repaid with one month notice and shares were returned. But the court held
that, company has no authority to take the shares back and the 'A' is also bound to
pay the money as the value of the shares.
6. Fictitious Names: A person taking shares in fictitious name shall be considered
member of the company and therefore cannot escape liability during liquidation.
7. Foreigner: A foreigner may be member of a company but during war between
the two countries, his rights to vote and receive notices shall be suspended.
8. Partnership Firm: Firm, not being a legal person cannot be a member of the
company, but partners name may be entered as members of the company and the
shares in their name shall be the property of the firm.
Maintaining List of Members:
• According to Section 34 of the Companies Act 1994, every company must
maintain one or more Register of Member which will contain the details of
members, their shares and payments, dates of membership and termination of
membership, etc.
• The companies having more than fifty members shall maintain an Index of
members and alterations in the member's list shall be adjusted within 14 days of
such alteration .
•In case of non-compliance the company and the directors involved shall be liable
for Tk 100 for each day in default.
Remedies for not listing the name in the Register:
Any shareholder, who has applied for membership but the company refused or
neglected to enter his name into the Register, shall have the following remedies-
1. He can file an application to the High Court Division to enter his name in the
Register (Section 43).
2. He can compel the company to perform its contractual obligation as he acquires
membership by contract of share.
Rights of Members:
A. Individual Rights:
1. Right to receive share certificate
2. Right to enter his name into the Register of Members
3. Right to transfer his share if permitted by article
4. Right to inspect the member's list without fee
5. Right to get copy of members list, annual report on payment of fee
6. Right to inspect the meeting minutes, list of board of directors, list of mortgages
and charges and list of debenture-holders.
7. Right to receive notice of general meeting before 14 days of such meeting
8. Right of pre-emption in case of newly issued shares
9. Right to participate and vote in the general meeting.
10. Right to send proxy in case of his absence
11. Right to inspect and receive the important documents and accounts of the
company.
12. Right to apply to the court for general meeting if it is not held in due time
13. In case of liquidation, right to receive

B. Collective Rights:
1. Right to take decision regarding the object and management of the company
2. Right to alter the share capital of the company
3. Right to elect and remove the directors
4. Right to approve or disapprove the decisions of the Board of Directors
5. Right to declare and receive dividends
6. Right to alter the memorandum and article of the company
7. Right to appoint auditor and inspector
8. Right to call special or extra-ordinary meeting
9. Right to claim voluntary winding up of the company
10. Right to claim compensation for misstatement in the prospectus.
Liabilities of Members:
1. Liability to pay the unpaid portion of the value of the share
2. Liability to pay the unpaid capital of the transferor if the membership is
acquired by Transfer
3. Liability to pay the money required to pay by share calls. Otherwise company
can forfeit the share
4. Company will have lien on the shares of the members if permitted by article
5. Liability to pay the unpaid capital during liquidation of the company
6. Liability of member who subscribe into the memorandum commences with the
incorporation but for other members, liability commences from the date of his
membership.
Termination of membership:
1. By death of the shareholder
2. By transfer of share to another person
3. By surrender of share to the company
4. By forfeiture of share by the company
5. By insolvency, if the name of trustee is entered into the members' list
6. By mortgage in his default of payment of the mortgage money and mortgagee
becomes the member
7. If the company exercises its right of lien and sell the share to others
8. By recession of share contract
9. By redemption in case of redeemable preference share
10. If the company sell the shares to another person in execution of decree
11. In case of issue of share warrant
12. in case of winding up of the company.
Edited by-
Mostafa Ahmed Suntu
Department of Law
Jagannath University