ICSB

Course Faculty:
Khandaker Habibuzzaman
Company Secretary
Square Group

Company Secretarial Practice-I

Membership in a Company
Every Company is comprised of members though in the contemplation of law a Company is an entity
distinct from its constituent members. In all important matters a Company can act only through its
members. Only members of a Company are entitles to receive a notice of annual and other general
meetings, to exercise voting rights at such meetings and to inspect the Register of Members and
others statutory registers maintained by a Company and so on. A Company is created by the
members and runs for the members and after the objectives for which it is promoted is achieved, is
also wound-up by the members.
Member
Every subscriber of the memorandum of company shall be deemed to have agreed to become a
member of the company and on its registration shall be entered as a member in its register of
members. Every other person who agrees to become a member of a company, and whose name is
entered in its register of members shall be a member of the company. (Sec-32)
The holder of shares in a registered company is known as shareholder and when his/her name in
entered in the registered of members he/she is the Member of the Company. Thus Member and
Shareholders are synonymous terms.
Induction of a Member
One can be a member of a company by any of the ways mentioned hereunder:
1.
2.

3.
4.

by subscribing to the memorandum of association

by agreeing in writing
- by application and allotment of shares
- by taking a transfer of shares
- by transmission of shares
By holding equity shares capital of a company whose name is entered as beneficial owner in
the record of the Depository.
Estoppel i.e. by allowing his name to be in the register of members or otherwise holding
himself out or allowing himself to be held out as a member.

Subscribers to the memorandum

A subscriber to the memorandum of association becomes a member ipso facto on incorporation of the
company, in respect of the shares subscribed by him without any further application by him or
allotment of shares to him. He will be liable for whatever number of shares he has subscribed for.
Subscribers to memorandum cannot have rescission on the ground that he was induced to become a
subscriber by the misrepresentation of an agent of the company. The contract effect by the signature
of the memorandum and registration of the company is not merely a contract between the subscriber
and the company, it is contract existence of which is the basis for creation of corporation as one of the
contracting parties and every other person who becomes a member becomes such on the footing that
the contract exist.
Every subscriber to a companys memorandum of association at once by subscribing irrevocably
agrees to take from the company the number of shares mentioned opposite his signature unless all its
share capital has been allotted to other persons.

Contd..P-02

Page-02

Agreeing in Writing
Two essential conditions have to be fulfilled by any person to become a member of a company other
then by subscribing to its memorandum of association. They are :
a.
b.

an agreement in writing to become a member, and

entry in the register.

Unless both the conditions are satisfied one cannot be termed a member of a company, a member
cannot become a member under this category unless he agrees to do so in writing. The agreement in
writing of a subscriber for shares is always expressed in the application submitted by him, and the
agreement of a renouncee of a letter of offer by his completing the application form contained in it or
accompanying it. There should be an agreement to become a shareholder which agreement can ripe
into a concluded contract only by an offer to take certain number of shares and the same being
accepted. Therefore, a written application for allotment of shares is necessary before a person can be
entered as a member in the register of members.
Membership may be acquired from an existing member by purchase of all or any of the shares
standing in his name and lodging with the company a transfer deed duly executed (affixed share
transfer stamp) along with share transfer by both the transferor and transferee together with the
certificate. When the transfer is registered by the company the name of transferee is entered in the
register of the company in place of transferor in respect of the shares comprised in the deed.
A person can be a shareholder in consequence or by reason of the death of a member or any other
event constituting transmission. But that person will become a member only when he applies in
writing requesting the company to make him a member and the company puts his name on the
register of the members.

By holding shares as beneficial owner in the record of the Depository.

A person holding equity share capital of a company whose name is entered in the records of the
depository shall be deemed to a member of the company.

Estoppel
A person will be deemed to be member if he allows his name to be on the register of members or
otherwise hold himself or allow himself to be hold out as a member. For example, the company has
allotted without application shares in the name of Mr. A and the same is communicated to him. Mr. A
signs a proxy or otherwise acts as the owner in respect of those shares. This is a case of becoming a
member by Estoppel. Mr. A cannot subsequently deny that he is the holders of those shares.
However, in the instant case Mr. A could have disclaimed his membership to the company when the
allotment of shares was communicated to him. But having not done so and enjoying the benefit of
membership he cannot subsequently disclaim membership of the company.
Contd..P-03

Page-03
Who can/cannot be a Member
To be a member of a company registered under the Companies Act. there is no such qualification or
disqualification prescribed by the Act. Subject to the memorandum and article of association, any
person except the company itself, can become member of a company. However, the following cases
deserve mention and special attention:
a.

Company : A company registered under the Companies Act is a legal person and so is
competent to contract therefore can acquire and own shares of another company, unless
restricted by its memorandum and articles.
b. Proprietorship/Partnership firm : A Proprietorship/partnership firm is not a legal entity as
well as it is not an incorporated one. It is merely a collection of name of the individuals who
are its members. Hence, it cannot be registered as a member of a company.
c. Minor: A minor is not competent to enter into an agreement enforceable by law. Hence he
cannot become a member of a company. Further, minor can be a member when shares are
gifted to him or transferred by way of transmission under a legal guardian.
d. Foreigner : A Foreigner is entitled to be a member of a company.
e. Pawnee : A Pawnee has no right of foreclosure since he never had absolute ownership at law
and his equitable title cannot exceed what is specially granted by law. In this sense. A pledge
differs from mortgage. In view of foregoing, a pawnee cannot be a treated as the holder of the
shares pledged in his favour and the pawner continues to be a member and can exercise the
right of a member. [Balakrishna Gupta v Swadeshi Polytex Ltd. (1985) 58 Comp. cas. 563 (s.c)]
f. Bankrupt : A bankrupt may be a member of a company as long as he is on the register of
members. [Morgan v. Gray (1953) ch 83]
g. In fictitious name : Anybody registered in fictitious name is liable both as a member and also
for impersonation.
h. In joint Name : Shares in a company can be held in more than one name. Companies Act
there is no ceiling on the number of persons holding a share/shares jointly. But the company
in its articles may restricts about the number of maximum joint holders. In such cases the
shareholders are liable jointly as well as severally.
i. A Trust : Trust not to be entered on register as per section 37 of the Companies Act. No
notice of any trust, expressed, implied or constructive, shall be entered on the register, or be
receivable by the Registrar.
Expulsion/Cessation of Membership
A person may cease to be a member of the company :
a.

by transferring his shares. In the case of a transfer, the transferor will continue to be member
until the shares are registered in the name of the transferee.
b. by forfeiture of his shares.
c. by a valid surrender
d. by death, but until the shares are transmitted his estate will be liable for any money due in
the shares.
e. by the company selling his shares in exercise of its right under the articles of association of
the company.
f. By the court or any other competent authority attaching and selling the shares in satisfaction
of a decree or claim.
g. By redemption of the preference shares.
h. By the official assignee disclaiming his shares, on his adjudication as an insolvent.
i. By rescission of contract of membership on the ground of misrepresentation or mistake.
Contd..P-04

Page-04

Rights of Members
When once a person become a member he is entitled to exercise all the rights of a member until he
ceases to be a member in accordance with the provision of the Act.
The rights of members are :
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.

p.
q.
r.
s.
t.
u.
v.

to receive a Share Certificate, as the certificate is the Prima Facie evidence of the title of the
member. (sec-31)
to transfer his shares [sec-30(1) and 38]
Registration as member (sec-34)
to receive notice of general meeting [sec-85(b)]
to attend and speak in general meeting [sec-85(a)(i)]
to vote on resolution at meeting of the company [sec-85(a)(ii)]
to appoint proxy to attend general meeting [sec-85(d)]
to demand poll (sec-85.c)
to obtain copies of memorandum and articles (sec-26)
to inspect share register and to get extract (sec-41)
to enjoy the profit of the company in the share of dividend (reg-97)
to associate in the declaration of dividend
to receive the dividend within 60 days.
to have first option to bye new shares desired to issue by the company (sec-155)
to participate in the appointment at the general meeting of
- Directors [sec 91(1)(b)]
- Auditors [sec 210(1)]
To receive statutory report for public limited company [sec 83(2)]
to receive directors report (sec 184)
to receive audited financial statement along with auditors report (sec-191)
to obtain minutes of general meeting [sec 89(5)]
to call a meeting (on requisition by the shareholders holds not less than one tenth shares on
issued share capital) (Sec 84)
to apply to the court in case of mismanagement and to protect the interest of minority
shareholders. (sec-233)
to apply to the court for winding up of the company (sec-291)

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