Members Of A Company

Members Of A Company


In the ordinary commercial usage, the term ‘Member’ denotes a person who holds shares in a company. The members or the shareholders are the real owners of a company. They collectively constitute the company as a corporate body.

The ultimate authority in matters relating to the appointment and removal of the directors, auditors and other managerial personnel lies with shareholders. The powers of the Board are also subject to the control and supervision of the general body of the members.

Members of the Company

The general body of members is entrusted with the power to supervise and control the power of the Board of Directors. By definition, the expression “Member” in connection to a company implies one who has consented to turn into the member of the company by entering his name into the ‘Registrar of Members’. A person is considered as the member of the company when he/she gives his/her assent to be a member of the company in writing and only purchase shares according to his membership. The name of the member of the company is entered as ‘Beneficial owner in the record of depository’.

To gain the membership of the company, the accompanying two components must be displayed:

  1. An agreement to turn into a member.
  2. The entry of the name of the individual so agreeing, in the Register of members of the company.

 Who can become a member ?

The company law does not prescribe any disqualification, which would depart a person from becoming a member of a company. It appears that any person who is competent to enter into valid contract become a member of a company. Subscribing for shares is basically a contract between the company and the shareholder. In the absence of any express provision regarding the capacity of a person, the provision of the Contract Act shall apply.

As regards to certain special category of persons, the judiciary has laid down certain principles for acquiring membership in a company. They are as follows:

  1. Minors: A minor is not competent person to enter into a valid contract. As such, he is disqualified to acquire membership. However minors may be allotted shares. On attaining majority, the minor can avoid the contract. But the minor should repudiate the contract within a reasonable time.
  2. Insolvent: An insolvent, however, can become a member and is entitled to vote at the meetings of the company. But his shares vest in the Official Receiver when he is adjudged insolvent.
  3.  Foreigners: Foreign national can be members of companies registered in India. For that permission of RBI is mandatory. When he turns an alien enemy, his right as a member will be suspended.
  4. Fictitious person: A person who takes the shares in the name of fictitious person becomes liable as a member. Besides such as person can be punished for impersonation.
  5. Partnership firm: A partnership firm may hold shares in a company in the individual name of partners as joint holders. But the shares cannot be issued in the name of the partnership firm, as it is not a legal person in the eye of law.
  6. Company: A company, being a legal person, can become the member of another company in its own name. But a company can subscribe for the shares of another company only when it is authorized by Memorandum. Similarly, a subsidiary company cannot buy the shares of its holding company.

CS Seema Bansal

CS Seema Bansal having experience of two years under CS firm and also having degree of B. Com and M. Com. Having expert knowledge of ROC related work and other company related compliances with MCA.

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