A company is composed of members, though it has its own entity distinct from members. The members of a company are the persons who, for the time being, constitute the company, as a corporate entity.
In the case of a company limited by shares, the shareholders are the members. The terms “members” and “shareholders” are usually used interchangeably, being synonymous, as there can be no membership except through the medium of shareholding. Thus, generally speaking every shareholder is a member and every member is a shareholder. However, there may be exceptions to this statement, e.g., a person may be a holder of share(s) by transfer but would not become its member until the transfer is registered in the books of the company in his favour and his name is entered in the register of members. Similarly, a member who has transferred his shares, though he does not hold any shares yet he continues to be member of the company until the transfer is registered and his name is removed from the register of members maintained by the company under Section 150 of the Companies Act, 1956.
In Herdilia Unimers Ltd. v. Renu Jain [1995] 4 Comp. LJ. 45 (Raj.), it was held that the moment the shares were allotted and share certificate signed and the name entered in the register of members, the allottee became the shareholder, irrespective of whether the allottee received the shares or not.
In a company limited by guarantee, the persons who are liable under the guarantee clause in its Memorandum of Association, are members of the company.
In an unlimited company, the members are the persons who are liable to the company, each in proportion to the extent of their interests in the company, to contribute the sums necessary to discharge in full, the debts and liabilities of the company, in the event of its being wound-up.
Definition of ‘Member’
According to Section 41 of the Companies Act, 1956:
- The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on registration, shall be entered as members in its register of members;
- Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members shall, be a member of the company;
- Every person holding equity share capital of a company and whose name is entered as beneficial owner in the records of a depository shall be deemed to be a member of the concerned company.
Accordingly, there are two important elements which must be present before a person can acquire membership of a company viz., (i) agreement to become a member; and (ii) entry of the name of the person so agreeing, in the register of members of the company. Both these conditions are cumulative. [Balkrishan Gupta v. Swadeshi Polytex Ltd. (1985) 58 Com Cases 563].
The person desirous of becoming a member of a company must have the legal capacity of entering into an agreement in accordance with the provisions of the Indian Contract Act, 1972. Section 11 of the Indian Contract Act lays down:
“Every person is competent to contract, who is of the age of majority according to the law which he is subject and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.”
