Member of a company

The phrases “members” and “shareholders” are typically used interchangeably. Typically, each shareholder is also a member, and vice versa. There may be exceptions to this statement, such as when a person acquires shares through a transfer but does not actually own them.

To become a member, the transfer must be registered in the company’s records and his name added to the membership register. If a member transfers their shares, they remain a member of the company until the transfer is registered and their name is removed from the firm’s membership register.

There are no disqualifications under company law that prevent individuals from joining a firm. It appears that any person who is capable of entering into a legitimate contract can become a member of a firm. The rationale is evident. Subscribing for shares is a contract between a firm and its shareholders. However, a company’s Memorandum or Articles may limit membership eligibility. The Contract Act governs a person’s capacity unless otherwise stated.

The judiciary has established guidelines for some individuals to become members of a firm. They are as follows.

1. Minors: A minor is not competent to engage into a binding contract. Therefore, he is not eligible for membership. Minors may receive shares, nevertheless. The minor may opt out of the contract once he or she reaches the age of majority. However, the minor must cancel the contract within a reasonable timeframe.
2. Psychotic and Insolvent: A lunatic cannot join. Insolvent individuals can become members and vote at business meetings. When he is declared insolvent, his shares become the property of the Official Receiver.
3. Partnership Firm: Partners may hold shares in a company under their individual names as joint holders. However, the partnership firm cannot issue shares as it is not considered a legal entity under the law.
4. Company: A legal entity might join another company under its own name. Subscribing to another company’s shares requires authorization through a Memorandum. A subsidiary company cannot acquire the shares of its parent company.
5. Foreigners: Foreign nationals may be members of firms registered in India. This requires RBI approval. If he becomes an alien enemy, his membership will be suspended.
6. Fictitious Person (Fake): Taking shares in the name of a fictitious person makes you liable as a member. Additionally, they may face impersonation charges under section 68-A.
7. Modes of acquiring membership

According to Section 41 of the Companies Act, individuals can become members of a company by subscribing to its Memorandum prior to registration.

2. by agreeing to become members.
3. applying for shares offered by a corporation.
4. Transferring a share or shares and joining the membership register.
5. Transferring shares to a deceased or bankrupt member and registering them in the company’s register.
6. holding out shares and allowing his name to remain on the registry.

Another option for joining a firm is by “Membership by Qualification Shares”. When a person accepts a position as a director of a firm, they are also considered members.

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Upon his appointment, some shares should be assigned to him. According to the Companies Act, directors of a public company must hold at least one share before being appointed. Such shares are referred to as qualifying shares.

1. Cessation of membership

(1) A member shall be deemed to have vacated his office–

(a) if he is absent without excuse, sufficient in the opinion of the Council, from three consecutive meetings of the Council;

(b) if he ceases to hold the post from which he has been nominated;

(c) in the case of a member elected under clause (g) of sub-section (3) of section 3, if he ceases to be a person enrolled in the register;

(d) if he has been convicted of an offence involving moral turpitude and punishable with imprisonment;

(e) if he is an undischarged insolvent;

(f) if he is of unsound mind and stands so declared by a competent court.

(2) On the occurrence of a vacancy referred to in sub-section (1), the President shall forthwith report the fact of such vacancy to the Central Government and thereafter that Government may, subject to the proviso to section 7, take necessary steps to fill such vacancy.

1. Rights & liabilities of members

Definition of Member: A member is an individual or entity who has joined a corporation and has particular rights and responsibilities.

Members might be shareholders, partners, subscribers, directors, or designated partners, depending on the firm and its legal form.

1. Rights of Members:
2. Voting Rights: Members often have the right to vote on important company issues such as director elections, policy approval, and critical business decisions.
3. Dividend Rights: If the company makes profits and declares dividends, shareholders have the right to receive them.
4. Right to information: Members have the right to get firm information, such as financial statements, annual reports, and other pertinent papers.
5. Right to Transfer Shares: Depending on the company’s constitution, members may have the ability to transfer their shares to others, subject to specific limits and legal requirements.
6. Right to participate in meetings: Members have the right to attend and participate in general, annual, and special general meetings to express their opinions and contribute to decision-making processes.

Liabilities of Members

1. Liability for shareholders:Shareholders’ liability is normally limited, which means that their personal assets are not at risk beyond the value of their stake in the company.
2. Responsibility for participants: In a partnership, participants may have unlimited responsibility, which means that their personal assets might be used to pay the company’s debts.
3. Fiduciary Duties: Members, particularly directors, have fiduciary duties to the company and its shareholders, which require them to behave in good faith, with due care, and prioritize the company’s interests.
4. Liability of misconduct: Members may be held personally accountable if they engage in fraudulent activity, deception, or other illegal actions that affect the company or its stakeholders.
5. Unpaid Contributions Liability: Members may be required to donate capital or resources to the firm as agreed during its creation or later fundraising activities. Failure to meet these commitments may result in liability.