Who Is a Member
A company member is an individual who formally agrees to be part of the company by having their name entered into the official ‘Register of Members.’ To become a member, a person must accept the company’s terms and conditions. Members typically hold shares in their name, particularly in a limited company, where share ownership defines membership. In contrast, in an unlimited company, members are those who bear liability for the company’s debts.
While members and shareholders are often associated, they differ in certain aspects. Shareholders own a portion of the company, whereas members do not necessarily have ownership rights. Membership in a company is governed by the Companies Act 2013, which outlines the appointment process. However, shareholders are not explicitly mentioned in the act. Every company must have a minimum number of members, with shareholders limited by their respective shareholdings. A person officially becomes a member upon signing the memorandum with the required details.
Membership
in the Company
According to the Companies Act 2013, individuals who agree to have their names listed in the company’s register of members by signing the memorandum are recognized as official members of the organization. Upon becoming a member, individuals receive a membership card as a symbol of their acceptance and proficiency. Once membership is accepted, certain official procedures must be completed.
To successfully obtain company membership, the following two essential requirements must be met:
- Signing an agreement to accept membership.
- Having the individual's name recorded in the ‘Register of Members.’
Modes
of Acquiring Membership
As outlined in the Companies Act 2013, membership in a company can be acquired through the following methods:
- Subscribing to the memorandum.
- Entering into a written agreement.
- Acquiring shares in the company.
Subscribing
to the Memorandum
A memorandum is a legal document that clearly defines a member’s role and liabilities within the company. By signing the memorandum, individuals pledge their commitment to becoming members, and their names are subsequently recorded in the Register of Members. If members later decide to acquire shares, they will also be considered shareholders.
Written
Agreement
In company management, agreements play a crucial role in all decisions. To become a member, one must sign a written agreement confirming their acceptance of the company's terms. Private limited company registration can also be completed online with ease.
Similarly, shareholder status can be acquired through four different methods:
- Application and Allotment – An individual must apply for company shares. Upon receiving an allotment notice, their name is added to the members' list.
- Transfer of Shares – Membership can also be obtained by acquiring shares from existing members, leading to an entry in the Register of Members.
- Estoppel – If an individual is listed as a company member without a valid reason, they may be legally prevented (estopped) from denying their membership.
- Shareholding – An individual can become a member when their name is recorded as the company’s beneficial owner. In this case, no written agreement is required.
Rights
and Liabilities of Membership
Liabilities
of Members
Liabilities refer to a member’s obligations and responsibilities within the company. These include:
- Conducting transactions in compliance with legal regulations.
- Making payments for shares as required.
- Adhering to decisions made by the majority.
- Contributing to the company’s assets.
Rights
of Members
In return for their responsibilities, members are granted specific rights that allow them to influence the company’s operations, including:
- Access to company documents and financial records.
- The authority to make key corporate decisions.
- The right to participate in general board meetings.
- The ability to appoint new directors.
- A share in the company’s profits.
- The power to challenge mismanagement and unethical decisions.
Removal
of Membership
Membership termination involves officially removing an individual’s name from the ‘Register of Members.’ This process requires significant administrative changes and can be done through the following methods:
- Transfer of Membership – A common method where a member transfers their shares to another individual, after which their name is removed from the company’s register.
- Transmission of Membership – Unlike a transfer, this occurs when membership is passed down to an heir or legal successor.
- Surrender of Membership – A member can voluntarily resign by returning their shares to the company, subject to board approval.
- Forfeiture of Membership – If a member fails to meet their obligations or loses ownership of their shares due to a legal or financial issue, their membership is revoked, and their membership card is terminated.
