MODES OF ACQUIRING MEMBERSHIP UNDER COMPANY LAW

MODES OF ACQUIRING MEMBERSHIP UNDER COMPANY LAW

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AUTHORED BY: MS. NISHITA KAPOOR, B.COM.LL.B, STUDENT AT UNIVERSITY INSTITUTE OF LEGAL STUDIES, PANJAB UNIVERSITY & RESEARCH WRITER AT LAW AUDIENCE: EDITED BY MS. SONAL GUPTA, B.A.LL.B, 2ND YEAR STUDENT AT SYMBIOSIS LAW SCHOOL, HYDERABAD & ASSISTANT EDITOR AT LAW AUDIENCE.

ABSTRACT:

The term “Member” is defined under Section 2 (55) of The Companies Act, 2013. It includes the subscriber to the memorandum of the company, any person who agrees to be a member of the company and who holds the shares of the company. In all these three situations, the person will be deemed to be the member only when his name appears in the register of members of the Company. A person who is capable of entering into a contract according to the provisions of Indian Contract Act, 1872 can only become a member of a company[1]. The minimum requirement of members in case of “Public Company” is seven, in “Private Company” is two and in the case of “One Person Company” is one.[2]

1. SUBSCRIBING TO MEMORANDUM OF ASSOCIATION:

A person who subscribes his name to the Memorandum is deemed to have agreed to become the member of a Company.[3] “Memorandum” means Memorandum of Association which is originally framed or altered under the provisions of the present Act or the previous Act[4]. On the registration of the Company, such person’s name is entered into the Register of Members.

According to Section 9 of The Companies Act, from the date of incorporation of the company, all the subscribers to the memorandum become the members of the Company[5]. In the case of U.P. Oil Mills Co. Ltd. v. Jamma Prasad[6], it was clarified that the subscribers shall become members of the company merely by the fact of subscription. This mode of acquisition of membership was available under The Companies Act, 1956 also.

2. AGREEMENT IN WRITING:

In the following situations, a person can become a member of a company but an agreement is required. In the case of Sree Ayyanar Spinning & Winning Mills Ltd.[7], it was held that there cannot be an oral application and application in writing has to be submitted by a person willing to be a member of a company.

2.1 TRANSFER OF SHARES:

The shares or interest of a member of a company shall be deemed to be his Movable Property, which can be transferred in accordance with the provisions of Articles of Company.[8] The Articles means the Articles of association of Company as originally framed or altered under the provisions of this Act or under the Previous Companies Act[9]. When such transfer takes place, the transferee becomes the Member of the Company. In the case of Private Company, there is a restriction on the right to transfer the shares of a member. The board has the power to refuse the registration of transfer of partly paid share to a person whom they do not approve or in case the company has a right of lien over the transfer of such shares.[10]

INSTRUMENT OF TRANSFER[11]                                                                   

  • The instrument of transfer has to be executed by both the transferor and the transferee or by any other person on their behalf.
  • The instrument of Transfer is required to properly stamp, dated and should be in such form as may be prescribed.
  • The instrument of Transfer has to be accompanied with a certificate relating to such shares.
  • Till the name of the transferee is entered in the Register of Members, the transferor shall remain the holder of such shares.
  • No transfer of share or interest can be registered in case of a company having no share capital until a proper instrument of transfer has been delivered to the Company within 60 days of its execution.

2.2 BY TRANSMISSION OF SHARES:

On the death of the member of the company, following category of the persons can have title to his interest in the shares[12]:-

  • In case the member was a joint holder, then the survivor or survivors as the case may be.
  • In case the member was a sole holder, then his nominee or nominees and in case there are no nominees than his legal representatives. 

Such a person who is entitled to the interest of the deceased member is required to make an election. Such a person has two options, either to be registered as a holder of the share or to make the transfer of such interest. In case, such person elects to be registered as the holder of the interest in the share, he has to serve a notice in writing stating his intention of such election.

In the case of One Person Company, on the death of the sole member, his nominee shall be entitled to the share of the deceased member. The nominee has to be informed about his right by the Board of the Company. On becoming a member, the nominee is required to name some other person, who shall thereby become a member on the death of the nominee but the consent of such person is required to be taken for the said purpose.

In the case of Indian Chemical Product Ltd. v. State of Orissa[13], intimation by the nominee or legal representative is required in writing, which will constitute an agreement in writing under the requirement of this provision. This mode of acquisition was also available under the provisions of The Companies Act, 1956.

2.3 ESTOPPEL OR ACQUIESCENCE:

Where the name of a person appears as a member in the Register of Members, and he allows his name to be on record, then he cannot afterwards contend that he is not a member of the company. He is bound by the rule of estoppel.

3. PERSON HOLDING SHARES & IS A BENEFICIAL OWNER IN RECORDS OF DEPOSITORY.

A person who holds the shares of a company and whose name is entered in the records of a Depository as a beneficial owner is a member of a Company. The depository means a depository as defined in clause (e) of sec. 2(1) of Depositories Act, 1996.[14]

According to the provisions of Sec. 89 of The Companies Act, 2013 when the registered owner and the beneficial owner of the interest in shares are two different persons, the declaration is required to be made mandatorily by the beneficial owner. But if no such declaration is made by the beneficial owner, then he or any person claiming under him cannot enforce his right in relation to the share. The main objective behind Sec. 89 of this Act is to the identity of the beneficial owner is revealed.

[1] Section 2(55)(i)(ii)(iii) of The Companies Act, 2013.

[2] Section 3 of The Companies Act, 2013.

[3] How to become a member of a company in India ?, , http://www.preservearticles.com/201104085063/how-to-become-a-member-of-a-company-in-india.html.

[4] Section 2 (56), The Companies Act, 2013.

[5] Section 9 of The Companies Act, 2013.

[6] [1993] 3 Comp. Cas. 256 (All).

[7] 1973 43 Comp. Cas. 225 Mad.

[8] Section 44 of The Companies Act, 2013

[9] Section 2(5) of The Companies Act, 2013.

[10] Regulation 20 of Table-F ,Schedule I of  The Companies Act, 2013

[11] Section 56 of The Companies Act, 2013.

[12] Resolution 23 of Table- F of Schedule I of The Companies Act, 2013.

[13] 1966 SCR 380.

[14] Section 2(32) of  The Companies Act, 2013.According to Sec. 2(1)(e),Depository means a company formed and registered under the Company Law and which has been granted a certificate of registration under sub-section (1A) of section 12 of Securities and Exchange Board of India Act,1992.

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