Companies Act

Interpretation Of The Concept OF “Membership” Under the Indian Companies Act, 2013

Author: Antima  Tiwari
Student, New Law College, BVDU, Pune

The members in any organisation are the persons who constitute it as a legal and functioning entity. The term “member” as per the company’s law refers to the ones who have agreed to become a part of the company by entering into what is known as the “registrar of the members”. Every person who has to agree and give in writing that they intend to become a member of the company and also the ones who hold some share in the company are considered to be the “members of the company”.   Although, there are exceptions to the fact that members and shareholders are the same but many times these terms are used interchangeable to each other. Section 2(55) of the Companies Act 2013[1] defines what a member in relation to the company means.[2]

Can you become a member under the provision of the Companies Act, 2013?

Any sui juris   person is eligible to become a member of a company (except the company itself.) There are no prescribed procedures or conditions which would entirely restrict a person from becoming a member. However, the memorandum or the articles of the company can impose limitations to some extent on certain people from acquiring a membership in the company.

Let’s now look at some of the categories of people whose role might be considered controversial depending upon different circumstances:

  • Foreigners: With respect to the sections and rules of the foreign exchange management act, 1999, a foreigner may be eligible to take shares in an Indian company. In case of war with his origin country, he will be considered as an alien enemy and his voting rights will be suspended.
  • Minors: The Contract Act states that a minor is incompetent to enter into a contract with anyone.[3] Hence, he/she cannot become a member or partner of any company or firm, moreover, any agreement with the minor to take any shares is considered void ab-intio. But there have been judicial precedents set by the judiciary where in a certain situations (i.e. where the membership is given as a part of inheritance, or gift) a minor has been considered as a member of the company.

In the case of Miss Nandita Jain v. Benett Coleman and Co. Ltd., Appeal No. 27 of 1972 dated 17.2.78] it was held that fully paid shares transferred to any minor will be considered valid if there is an agreement in writing for a minor to become a member and the same was signed by his/her lawful guardian.

  • Partnership firms as a member: No partnership firm can in its own name be registered as a member of the company unless stated otherwise as per the provision of company registered under section 8 company Act, 2013.
  • Section 8 of the CA, 2013 as a member: If it is a non-profit company and is licensed under section 8 of the Company Act, it can become a member of another company depending upon if authorised by the memorandum of association to invest in the shares of other companies.
  • Insolvent as a member: Even person who has been declared solvent will still be eligible to be a member of the company if his name is in the register of members. He will have all the voting rights but might lose all the beneficial interest he had earlier in the shares of that company.
  • Trade union as a member: With respect to the provisions of the trade union Act, a union which is registered can become a member and can also hold shares in that particular company but only by its corporate legal name.[4]

After becoming a member, there are a few rights and liabilities which a member of company enjoys. These rights can be grouped majorly under 3 heads: (a) Legal Rights: There are a few rights which are given to the members of any company/firm by general laws of that country. (b) Documentary Rights: When we enter any firm/organisation, there are few documents which are considered to be binding upon the individual.  These documents have some rights that can be conferred upon by the documents like the memorandums and articles of association. (c) Statutory Rights: Every statute provides rights to an individual rights which cannot be suspended by company or firm and the rights stated by the statute are governing over that established by any firm. In the content of company, the rights that cannot be taken away even by the documents like Articles or memorandum of association. Some of these rights are: Right to receive notice of meetings, attend, take part in the discussions and vote in the meetings, Right to apply to court in case of winding up of a company, Right to receive copies of the Annual accounts of the company etc.

MODES OF ACQUIRING MEMBERSHIP

In order to acquire the membership of any company, we have seen that the following elements should be considered: (a) an agreement (in writing) to become a member (b) entry in the register of members of the company. The different modes and processes in which a membership can be acquired are explained below:

  1. Holding shares: If the name of the person is added as a beneficial owner in the records of the depository and the same person holds an equity share capital in the company, they will become eligible to be a member of the company.
  2. Subscriber of the memorandum of association: When a person becomes a subscriber to the memorandum of the company, it is interpreted that they have deemed to agree to become a part of the company. After the registration is done their name is added to the register of member of the company.
  3. Agreement in writing: When a person agrees “in writing” to become a member of the company and gets his name registered in the register of member. A shareholder can also become a member if he has “agreed in writing” and by transfer of shares, transmission of shares or by estoppel.

Cession of membership

The term “cession” refers to the termination. Like any other association, there are ways one can terminate their association with the company and give up their membership. Terminating of a member will result in their removal from the “register of members”. The modes for the removal of the members of a company can be done in the following ways:

  1. Transmission of member: If there is a death of a shareholder or the member, their legal representative is deemed to become a member.
  2. Transferring the membership: If the shares are transferred by the company; the transferor’s will be removed from the register of members, therefore, terminating their membership.
  3. Share buyback: If the company decides to buy back its shares, then the leads to termination of membership of the person from whom the shares are brought.
  4. Forfeiture of membership: The member can be terminated on account of a loss or when selling of a share.
  5. Surrendering of membership: When a member decides to surrender their shares, their membership is called to be terminated.

To conclude, it is important to for a person to be considered a member to register them with the register of members of a company and express their will through a written document. Like other responsibilities and duties if a member fails to adhere with his/her duties they can be terminated as per provision of the company and as per the provisions mentioned under the Act.

 

 

[1] The Companies Act 2013, section 2(55)

[2] (a) Subscribing to the memorandum of the company and has agreed to be a part of the company and on their registration, has been entered in the register of members; (b) Person agreeing in writing to become a member of the company, by being entered in the register of members of the company. (c) Person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository

[3] Mohori Bibi v Dharmodas Ghosh (1903) 30 Cal. 539

[4] All India Bank Officers Confederation v. Dhanalakshmi Bank Ltd., (1997) 90 Com Cases 225

 

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