Subject to the Memorandum and Articles, any sui juris (a person who is competent to contract) except the company itself, can become a member of a company. However, it is important to note the following points in relation to certain organisations and persons:
- Company as a member of another company : A company is a legal person and so is competent to contract. Therefore, it can become a member of any other company. However, it must be authorised by its Memorandum of Association to invest in the shares of that company or any other company. A subsidiary company cannot become a member of its holding company. Also a company cannot become a member of itself.
- Partnership firm as a member : A partnership firm is not a legal person and as such it cannot, in its own name, become a member of a company. However, its partners may become joint shareholders of a company and their names be entered in the register of members. However, it can become a member of a Section 25 Company, but on dissolution of the firm its membership of such a company ceases.
- Section 25 company : A non-profit making company licensed under Section 25 of the Companies Act can become a member of another company if it is authorised by its Memorandum of Association to invest into shares of the other company.
- Foreigners as members : A foreigner may take shares in an Indian company and become a member subject to the provisions of the Foreign Exchange Management Act, 1999, but in the event of war with his country, he becomes an alien enemy and his power of voting and his right to receive notices are suspended.
- Minor as member : A member who is not a sui juris e.g., a minor, is wholly incompetent to enter into a contract and as such cannot become a member of a company. Consequently, an agreement by a minor to take shares is void ab-initio.
In Palaniappa v. Official Liquidator, Pasupati Bank Ltd., A.I.R. 1942 Mad. 470, an application was made by a father as guardian of his minor daughter describing her as minor. The company went into liquidation. It was held that the transaction was void on the face of it and the father of the minor who had signed the application could not be deemed to have contracted for the shares and could not be placed on the list of contributories.
If the directors, not aware of the fact of minority, allot shares to a minor in response to his application, and enter his name in the register of members, the company can repudiate the allotment and remove his name from the register on coming to know of the minority of the person. The minor may also repudiate during his minority. In either case, the company must pay back all moneys received from the minor in respect of the shares allotted to him. If neither party repudiates the allotment, the minor’s name remains on the company’s register of members, he does not incur any liability during his minority, as was held in Fazalhboy Jaffer v. The Credit Bank of India A.I.R. 1914 Bom. 128, a minor can be a member so as to enjoy the benefits of membership without being liable as a contributory.
After attaining majority, the minor, if he does not want to be a member, must repudiate his liability on the shares on ground of minority, and if he does so, the company can not plead estoppel on the ground of his having received dividends during his minority or that he had fraudulently misrepresented his age in his application for shares [Sadiq Ali v. Jai Kishori, (1928) 30 Bom. L.R. 1346].
It has been held by the Company Law Board that an agreement in writing for a minor to become a member may be signed on behalf of the minor by his lawful guardian and the registration of transfer of shares in the name of the minor, acting through his or her guardian, especially where the shares are fully paid cannot be refused on the ground of the transferee being a minor [Miss Nandita Jain v. Benett Coleman and Co. Ltd., Appeal No. 27 of 1972 dated 17.2.78].
If shares are transferred to a minor, the transferor will remain liable for all future calls on such shares so long as they are held by the minor even if the transferor was ignorant of his minority. If the company knows of his minority it may refuse to register the transfer, unless the transfer was made through the guardian.
- Insolvent as member : As insolvent may be a member of a company as long as he is on the register of members, he is entitled to vote, but he loses all beneficial interest in the shares and company will pay dividend on his shares to the Official Assignee or Receiver [Morgan v. Gray, (1953) All E.R. 213].
- Pawnee : A pawnee has no right of foreclosure since he never had the absolute ownership at law and his equitable title cannot exceed what is specifically granted by law. In this sense, a pledge differs from a mortgage. In view of the foregoing, a pawnee cannot be treated as the holder of the shares pledged in his favour, and the pawner continues to be a member and can exercise the rights of a member [Balakrishna Gupta v. Swadeshi Polytex Ltd., (1985) 58 Comp. Cas. 563 (S.C.)].
- Receiver : A receiver whose name is not entered in the register of members cannot exercise any of the membership rights attached to a share unless in a proceeding to which company is a party and an order is made therein. Mere appointment of a receiver in respect of certain shares of a company without more rights cannot, deprive the holder of the shares whose name is entered in the register of members of the company, the right to vote at the meeting of the company [Balakrishna Gupta v. Swadeshi Polytex Ltd., (1985) 58 Comp. Cas. 563 (S.C.)].
- Bankrupt : A bankrupt may be a member of a company, as long as he is on the register of members. He is entitled to vote [Morgan v. Gray, (1953) Ch. 83].
- Persons taking shares in fictitious names : A person who takes shares in the name of a fictitious person, becomes liable as a member besides incurring criminal liability under Section 68A of the Act, wherein punishment provided is imprisonment up to five years.
- Trade Union as member : A trade union registered under the Trade Union Act, can be registered as a member and can hold shares in a company in its own corporate name [All India Bank Officers Confederation v. Dhanlakshmi Bank Ltd., (1997) 90 Com Cases 225].
