MEANING OF MEMBER: As per Section 2(55) of Companies Act 2013 ‘member’, in relation to a

company, means—

(i) The subscriber to the memorandum of the company who shall be deemed to have agreed to
become member of the company, and on its registration, shall be entered as member in its register
of members; (ii) Every other person who agrees in writing to become a member of the company and
whose name is entered in the register of members of the company;

(iii) Every person holding shares of the company and whose name is entered as a beneficial owner in
the records of a depository;
In general, we can say that a person is said to be a member of the company if his name is entered in
the registers of members by the company or as a beneficial owner in the records of depository.

METHODS OF BECOMING MEMBER

By subscribing memorandum: At the time of Incorporation, the persons who agree to purchase at
least one share of the company.

By allotment of shares: allotment of shares occurs when the company(issuer) issues shares initially
either by way of Initial Public Offering or Further Public Offering.

By transfer: transferee becomes a member of the company when the company registers such
transfer and enters his name in register of members.

By transmission: the person entitled for the shares of the deceased member will become the
member of the company when his name gets entered in the register of members on providing notice
of transmission to the company.

By becoming beneficial owner: a person whose name is entered as beneficial owner in the records of
the depository

NOTE: here “Beneficial owner” means a person who is entitled for the ultimate benefits.

CESSATION OF MEMBERSHIP

Meaning: A member of a company ceases to be a member when his name is removed.

i) Transfer of shares by sale or otherwise:

IN CASE OF PHYSICAL MODE

When a member delivers duly signed (executed) share Transfer Deed along with share certificate
(SH-4) to the person he intends to transfer the share and his name got removed from the register of
members of the company or from the registers of beneficial owner on Registration of transferee as
member.

IN CASE OF DEMAT MODE (ELECTRONIC)

In case of shares held in electronic mode when a member issues delivery instruction to his DP for
transfer of shares and his name got removed from the registers of beneficial owner maintained by
the depository.

(ii) Forfeiture of shares: If a member does not pay the allotment money or any call due on shares
held by him, then the company has a power to forfeit such shares after giving a proper notice of 14
days.
(iii) Sale of shares under lien:

A member on whose shares, company enforces its lien by way of sale of such shares, such member
ceases to be a member on the date when his name got removed from the registers of members or
from the Registers of Beneficial Owners.

NOTE: A company can only exercise lien on the shares if such power is given under AOA (Articles of
Association) of the company.

(iv) Death/Insolvency:

In case of death of a member he ceases to be a member on removal of his name from the register of
members or beneficial owners and enters the name of his nominee/ successor in his place in the
registers.

NOTE: The nominee/ successor shall follow the laid down procedure for the transmission of shares.

(v) Conversion of shares into share warrants/stocks:

A company can convert its fully paid-up shares into stock or share warrants (if authorized by its
Articles of Association),

On such conversion the name of such members got struck from the registers and they cease to be a
member of the company.

(vi) Buyback of shares:

Subject to the provisions of Section 68 of the Companies Act, 2018 and Articles of Association of the
Company, those members who offer their shares to the company for sell in buy back, such members
cease to be a member of the company on cancellation of such bought back shares.
(viii) Dissolution/Winding up/Striking off the name of the Company:

In case of Dissolution/ striking off: if a company’s name is stuck off or it has been dissolved then the
members of such company ceases to be members.

In case of winding up of the company: on winding up the members ceases to be members but
remain liable as contributories and are entitled to claim share in the profits (if any).

Expulsion of a Member
A controversy had arisen as to whether a public limited company had powers to insert an article in its
Articles of Association relating to expulsion of a member by the Board of Directors of the company
where the directors were of the view that the activities or conduct of such a member was detrimental
to the interests of the company.

The Department of Company Affairs (now, Ministry of Corporate Affairs) clarified that an article for
expulsion of a member is opposed to the fundamental principles of the Company Jurisprudence and
is ultra vires the company, the reason being that such a provision against the provisions of the
Companies Act relating to the rights of a member in a company

As, under Article 141 of the Constitution, the law declared by the Supreme Court is binding on all
courts within the territory of India, any provision pertaining to the expulsion of a member by the
management of a company which is against the law as laid down by the Supreme Court will be illegal
and ultra vires. In the light of the aforesaid position, it is clarified that assumption by the Board of
directors of a company of any power to expel a member by amending its articles is void.

CALLS AND FORFEITURE OF SHARES

“A call may be defined as demand by a company in pursuance of a resolution of the Board of
Directors and in accordance with regulation of its Articles and the provisions of the Companies Act,
upon its members to pay the whole or part of the balance still due on each share”.

Requisites of valid call

Resolution of Board of Directors is essential. The resolution must state the following particulars

1. Description of shares

2. Face value of shares

3. Day and date of shares

4. Place

5. Interest to be charges on unpaid amount.

6. Another resolution is to be passed to authorize the secretary to close the member’s

Registrar and the Transfer book

7. Calls on all shares must be made on uniform basis.

8. The call must be made in the bonafide interest of the company.

9. Call should be made according to provisions of the Articles of Association.

FORFEITURE OF SHARES

“Calls in arrears” are those calls for which the required amount has not been paid by the
shareholders. Forfeiture means “confiscation of the shares of a shareholder by way of penalty for
non-payment of any call”.

Rules in connection with forfeiture

1. Power to forfeit: The Articles of Association must empower the Board to forfeit the shares.
Shares can be forfeited for non-payment of call or for any other valid reason specified in the
Articles.

2. Notice for forfeiture: Notice of at least 14 days must be served by “Registered Post AD or by
“courier”.

3. Resolution for forfeiture: A Board resolution must be passed.

Bona fide interest of the Company: Forfeiture must be made in bona fide interest of the company.

Consequences of forfeiture

i. The defaulting shareholders ceases to be the shareholder and ceases to enjoy rights of
membership.

ii. Liability for unpaid call remains even after shares are forfeited. Company can sue the
person for the amount due within 3 years.
Annulment of forfeiture: The Board may cancel the forfeiture on request of the shareholder. A Board
resolution is to be passed and the amount must be received with interest.

TRANSFER OF SHARES

Transfer of shares in a private limited company has certain restrictions; Shares must be offered first
to the existing company members and total number of members must not exceed 200.

Public companies do not restrict transfer right.

SEBI has recently amended relevant provisions of SEBI (Listing Obligations and Disclosure
Requirements)(Fourth Amendment)Regulations,2018 to disallow listed companies from accepting
request for transfer of securities which are held in physical form with effect from April 1,2019. The
shareholders, who continue to hold shares and other types of securities of listed companies in
physical form even after this date, will not be able to lodge the shares with the company for further
transfer. They will need to convert them to demat form compulsorily if they wish to effect any
transfer. Only the requests for transmission and transposition of securities in physical form will be
accepted by the listed companies.

TRANSFER OF DEMATERIALISED SHARES

Section 7 of the Depositories Act, 1996 lays down that every depository shall, on receipt of
intimation from a participant, register the transfer of shares in the name of the transferee and
where the beneficial owner or a transferee of any shares seeks to have custody of such shares, the
depository shall inform the issuer accordingly.

The transfer deed and all other provisions stipulated in Section 56 of the Companies Act, 2013 shall
not apply to the transfers affected within the depository mode. No stamp duty is levied on transfer
of securities held in demat form. Any number of securities can be transferred/ delivered with one
delivery instruction. Therefore, the paperwork and signing of multiple transfer forms is done away
with.

The procedure for sale of shares held in demat form is as under:-

─ Sale shall be made through a broker who is a member of National Stock Exchange;

─ Shareholder, i.e., the beneficial owner (BO) will give delivery instruction through Delivery
Instruction Slip (DIS) to depository participant (DP) to debit his account and credit the broker’s
account. Such instruction should reach the DP’s office at least 24 hours before the pay-in, failing
which, DP will accept the instruction only at the BO’s risk;

─ The broker shall give instructions to his DP for delivery to clearing corporation of the concerned

stock;

─ exchange and receive payment from clearing corporation.

The broker shall make payment to the investor in physical form. The procedure for purchases of
securities held in demat form is as under –

(i) broker will receive the securities in his account on the payout day;

(ii) broker will give instruction to its depository participant to debit his account and credit beneficial
owner’s account;

(iii) BO will give ‘Receipt Instruction’ to DP for receiving credit by filling appropriate form. However,
BO
can give standing instruction for credit to his account that will obviate the need of giving Receipt

Instruction every time

TRANSMISSION OF SECURITIES

Transmission of securities has not been defined by the Companies Act. ‘Transmission by operation of
law’ is not a transfer. It refers to those cases where a person acquires an interest in property by
operation of any provision of law, such as by right of inheritance or succession or by reason of the
insolvency or lunacy of the holder of securities or by purchase in a Court-sale.
Thus, transmission of securities takes place when the registered holder of securities dies or is
adjudicated as an insolvent, or if the holder of securities is a company, it goes into liquidation.
Because a deceased person cannot own anything, the ownership of all his property passes, after his
death, to those who legally represent him. Similarly, when a person is declared insolvent, his entire
property vests in the Official Assignee or Official Receiver. Upon the death of a sole registered holder
of securities, so far as the company is concerned, the legal representatives of the deceased holder of
securities are the only persons having title to the securities unless securities -holder had appointed a
nominee, in which case he would be entitled to the exclusion of all others.

Transmission in Case of Sole Owner

On the death of a sole owner of shares, vesting of rights and liabilities goes in favor of the legal heirs.
They are entitled to be registered as the holders of shares. But the legal heirs do not by itself
become members of the company. The company cannot register them as members without their
consent. A company cannot compel them to become member nor it is a duty to do so. The company
can justifiably register them as members when they apply for it.

Transmission of shares to widow

If a widow applies for transmission of the shares standing in the name of her deceased husband
without producing a succession certificate and if the articles of association of the company so
authorises, the directors may dispense with the production of succession certificate, probate or
letter of administration upon such terms as to indemnity as the directors may consider necessary,
and transmit the shares to the widow of the deceased by obtaining an indemnity bond.

Transmission of joint holdings

In case some shares are registered in joint names and the articles of the company provide that the
survivor shall be the only person to be recognised by the company as having any title to the shares,
the company is justified in refusing to register the transmission of title by operation of law in favour
of the son of the deceased holder even though he may obtain succession certificate from the Court.

Section 56(1) of the Companies Act, 2013 states that the transfer of securities must be effected by a
proper instrument of transfer and that a provision in the articles of an automatic transfer of
securities of a deceased securities-holder is illegal and void. Such transfer does not amount to
transmission which takes place by operation of law. Section 56(2) of the Act provides that nothing in
the sub-section(1) shall prejudice the powers of the company to register, on receipt of an intimation
of transmission of any right to securities by operation of law from any person to whom such right
has been transmitted. It follows that, for such transmission, instrument of transfer is not required,
and, merely an application addressed to the company by the legal representative is sufficient.

Articles of companies generally provide for formalities to be observed for transmission of shares. In
the absence of such provision in the articles of the company, Regulations 23 to 27 of Table F of
Schedule I to the Act will govern the procedure for transmission. According to these regulations, the
legal representatives are entitled to the shares held by deceased member and the company must
accept the evidence of succession e.g., a succession certificate or letter of administrations or
probate or any other evidence properly required by the Board of directors. He is, however, not a
member of the company by reason only of being the legal owner of the shares. But he may apply to
be registered as a member. On the contrary, instead of being registered himself as a member, he
may make such transfer of the shares as the deceased or insolvent member could have made. The
Board of directors also have the same right to decline registration as they would have had in the
case of transfer of shares before death. But if the company unduly refuses to accept a transmission,
the same remedies are available to the legal representative as in the case of a transfer namely, an
appeal to the Tribunal under Section 58.

DIFFERENCE BETWEEN TRANSFER AND TRANSMISSION

Comparison Basis Transfer of Shares Transmission of Shares

Definition The share transfer is done Share transmission takes place by

voluntarily by one party with law in an instance when the
another. member of the company is not
alive or has become insolvent.

Reason for the It’s a voluntary decision of the In case of insolvency, death or
transfer or members of the company. inheritance of the member.
transmission

Initiated by Transferor or Transferee Legal heir or receiver

Consideration Shares are transferred to Shares are transmitted without

transferee for money consideration money consideration

REGISTER OF MEMBERS ETC.

Section 88 of the Companies Act,2013 lays down:

(1) Every company shall keep and maintain the following registers in such form and in such manner
as may be prescribed, namely:—

(a) register of members indicating separately for each class of equity and preference shares held by

each member residing in or outside India;

(b) register of debenture-holders; and

(c) register of any other security holders.

(2) Every register maintained under sub-section (1) shall include an index of the names included
therein.
(3) The register and index of beneficial owners maintained by a depository under section 11 of the

Depositories Act, 1996 (22 of 1996), shall be deemed to be the corresponding register and index for
the purposes of this Act.
(4) A company may, if so authorised by its articles, keep in any country outside India, in such manner
as may be prescribed, a part of the register referred to in sub-section (1), called "foreign register"
containing the names and particulars of the members, debenture-holders, other security holders or
beneficial owners residing outside India.

(5) If a company does not maintain a register of members or debenture-holders or other security
holders or fails to maintain them in accordance with the provisions of sub-section (1) or sub-section
(2), the company and every officer of the company who is in default shall be punishable with fine
which shall not be less than fifty thousand rupees but which may extend to three lakh rupees and
where the failure is a continuing one, with a further fine which may extend to one thousand rupees
for every day, after the first during which the failure continues.
RIGHTS OF MEMBERS

Individual Rights

Members of a company enjoy certain rights in their individual capacity, which they can enforce
individually. These rights are contractual rights and cannot be taken away except with the written
consent of the member concerned.

Collective Membership Rights

Members of a company have certain rights which can be exercised by members collectively by
means of democratic process, i.e. by majority of members usually unless otherwise prescribed. This
involves the principle of submission by all members to the will of the majority, provided that the will
is exercised in accordance with the law and the Memorandum and Articles of Association of the
company. Thus, the shareholders in majority determine the policy of the company and exercis e
control over the management of the company.

Voting Rights of Members

The right of attending shareholders’ meetings and voting thereat is the most important right of a
member of a company, as shareholders’ meetings play a very important role in the company’s life.
Directors are appointed by the shareholders, who direct the affairs of the company, formulate short -
term plans and long-term policies of the company, appoint management personnel to constitute
organisation to implement their plans and policies in order to achieve the objects of the company.