Membership of a Company

A company when incorporated is an artificial person. It is a constitution of natural persons called members of a company. Now who are the members of a company?

1) the subscribers to the memorandum of a company shall be deemed to have agreed to become members of the company and on its registration shall be entered as members in the Register of Members:
2) Every other person who agrees writing to become a member of a company and whose name is entered in its register of members shall be a member of the company.
3) Every a person holding equity share capital of company and whose name is entered as a beneficial owner in the records of the depository shall be deemed to be a member of the concerned company.

Therefore membership of a company can be obtained in following ways:

a) By subscribing to the memorandum of association of a company.
b) By agreeing in writing to become a member
c) Every person holding equity share capital and whose name is entered as beneficial owner in the records of the depository.

The essential factor to constitute membership is that the name of the person in either of the above circumstances must appear in the register of members of the company or as a beneficial owner in the records of depository.

Members and Shareholders: Both the terms are synonymous in case of a company with a share capital or a company limited by guarantee and having a share capital. However, in case of a company limited by guarantee not having a share capital and in case of an unlimited company not having a share capital distinction arises between a member and a shareholder.

We have seen above that initially those who subscribe to the memorandum and articles of the company are the members. Subsequently in a company with share capital, persons who subscribe to the share capital of the company and their names are entered in the register of members of a company are members. They are also called shareholders.

However, in case of a company having no share capital a member cannot be a shareholder as there is no share capital. Similarly persons who agree in writing to become members and their names are entered into the register though they may not have taken any shares in the capital of the company are not shareholders . They were members, holders of share warrants are shareholders but they are not members , because their names are struck off the register of members. A legal representation of a deceased shareholder is not a member until they apply for registration.

Therefore the term member is wider in scope than a shareholder. Member includes shareholder. A shareholder is a member but a member may not be a shareholder.

How is membership acquired?

Membership of a company is acquired in any of the followings ways:

1) By subscribing to the Memorandum of the company before registration.
2) By agreeing in writing to become a member of a company and his name is entered in the register of members.
3) By subscribing to the shares in the capital of the company i.e. by allotment of shares by a company;
4) By purchase of shares in his own name is entered in the register of members as a transferee
5) By succession i.e. by transmission;
6) On solvency of a member an official assignee or receiver is entitled to be a member in his place,
7) By allowing his name to appear in the register of members i.e. by estoppel
8) By entry as beneficial owner in the records of the depository.

A member who has transferred his share continues to be a member so long as his name continues to appear in the register of members. He cease to be a member only when his name is struck off the register and the name of transferee is entered there into.

Source: Business Law

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