Interpretation of Concept of ‘Membership’ Under Companies Act 2013

MEANING OF MEMBER:  As per Section 2(55) of Companies Act 2013 ‘member’, in relation to a company, means—

(i) The subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members; (ii) Every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;

(iii) Every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository;

In general we can say that a person is said to be a member of the company if his name is entered in the registers of members by the company or as a beneficial owner in the records of depository.

METHODS OF BECOMING MEMBER:

• By subscribing memorandum: At the time of Incorporation, the persons who agree to purchase at least one share of the company.
• By allotment of shares: allotment of shares occurs when the company(issuer) issues shares initially either by way of Initial Public Offering or Further Public Offering.
• By transfer: transferee becomes a member of the company when the company registers such transfer and enters his name in register of members.
• By transmission:the person entitled for the shares of the deceased member will become the member of the company when his name gets entered in the register of members on providing notice of transmission to the company.
• By becoming beneficial owner: a person whose name is entered as beneficial owner in the records of the depository

NOTE: here “Beneficial owner” means a person who is entitled for the ultimate benefits.

• By estoppel: a person whose name was entered in the register of members and knowingly he does not apply for rectification of the same, becomes a member by estoppel (estopped from his own act)

SOME IMPORTANT POINTS TO BE NOTICED REGARDING MEMBERSHIP IN A COMPANY:

√ The term Shareholder is distinct from  the term Member

√ Minor can become member of a company (only for fully paid up shares)

√ A firm cannot become a member of a company as it does not carry a separate legal entity.

√ HUF cannot become a member of a company; however a KARTA can become a member in his individual capacity.

√ Subsidiary company cannot become a member of its holding company except 3 cases mentioned under section 19 of Companies Act 2013.

INTERPRETATION OF SECTION 19 OF THE ACT:

• Subsidiary company cannot hold shares of its holding company

EXCEPT

NOTE: the subsidiary company who was already a shareholder before being a subsidiary company will not be entitled for any voting rights on his holding.

However, in case of Company limited by Guarantee or an Unlimited Company not having share capital:

• The reference to shares shall be constructed to the interest of members in whatever form.

CESSATION OF MEMBERSHIP

Meaning:  A member of a company ceases to be a member when his name is removed :

→ Ways of Cessation of MEMBERSHIP of a MEMBER:

(i) Transfer of shares by sale or otherwise:

(ii) Forfeiture of shares:

(iii) Sale of shares under lien:

(iv) Death/Insolvency :

(v) Conversion of shares into share warrants/stocks:

(vi) Buyback of shares:

 (viii) Dissolution/Winding up/Striking off the name of the Company:

Expulsion of Member

Q. Can a member be Expelled from the Company by inserting a clause to its MOA or AOA ?

No, A member cannot be Expelled because according to section 6 of Companies Act 2013 anything contained in MOA or AOA beyond the powers provided by Companies Act 2013, is void

According to Section 6 of the Companies Act, the Act overrides the memorandum and articles of association and any provision contained in these documents repugnant to the provisions of the Companies Act, is void.

However Section 235 is an Exception to this Rule that Members cannot be expelled.

CASE LAW : [ RE: MALINI BHARTI RAO CASE ]