Membership in a Company

Membership in a Company

By definition, the term “Member” in relation to a company means, one who has agreed to become the member of the company by entering his name into the ‘Register of Members’. Every person who has agreed in writing to become a part of the company and also holds shares of the company is considered the ‘Member of the Company’ and is said to hold membership in a company. The name of the member of the company is entered as ‘Beneficial owner in the record of depository’.

In order to acquire the membership of the company, the following two elements must be presented: (section 2(55))

1. An Agreement to become a member.

2. Entry of the name of the person so agreeing, in the Register of members of the company.

The enlisted person should be in a capable of entering into a contract with the company. But a bearer of share warrant is not a member of the company.

Finally, to become the registered member of the company the person should be satisfactory as an asset to the company.

Modes of Acquiring Membership

Acquiring a membership in a company requires many processes and modes. The following are the modes of acquiring membership in a company:

Subscribing to MOA

* If a person agrees to sign the memorandum and pledge his presence on the board of members, he becomes the member of the company.

* Names of the people who have agreed to join the membership of the company should be entered in Register of Members.

* Along with the agreement, if they’ve agreed to share the company’s shares they become the Shareholders of the Company.

Agreement in Writing

* A person would become the member of the company if he ‘agrees in writing’ and gets his name entered in the register of members of the company.

* A shareholder would also become a member of the company if he ‘agrees in writing’, and by the following methods:

By transfer of shares

By transmission of shares

By Estoppels (Membership Without sufficient Cause).

Holding Shares

A person becomes a member of the company if his name is entered as a beneficial owner of the records of the depository and also holds equity share capital of the company. In such cases, the person needn’t apply ‘in writing’ to become a member of the company.

Who can become member?

All persons who are competent to contract may, in general, become members of a company. There are, however, some special considera­tions to which reference must be made.

(1) Company.

A company may become a member of another com­pany if it is authorised by its memorandum or articles, or if it takes the shares of another company by way of a Compromise or Arrange­ment.

A company cannot, however, buy its own shares. Also, subject to certain exceptions given in Section 42, a company cannot buy shares of its holding company.

(2) Hindu undivided family.

A Hindu undivided family can purchase shares in a company through its Karta, i.e. the karta only shall become the member of the company.

(3) Firm.

A partnership firm cannot become a member of a com­pany, as it is not a legal person having a separate entity from that of partners. Partners may be registered as joint holders in which case each of them becomes a member.

(4) Joint holders.

The shares of a company may also be held jointly by two or more persons. In the case of. a public company every joint shareholder is counted as a separate member (Narandas Man Mohandas Ramji & Sons vs. Indian Manufacturing Co. Ltd.) but in the case of a private company joint holders are treated as a single member [Section 3(l)(iii)].

(5) Registered society.

A society registered under the Society registration Act, I860, is competent to hold shares in a company in its own name, if it is so authorized by its memorandum or articles of association.

(6) Insolvent.

An insolvent may be a member of the company (Morgan vs. Grey), although the beneficial interest in his shares will be with the Official Receiver. He does not cease to be a member of the company on becoming insolvent, unless provided otherwise by the articles of association.

(7) Minor.

A minor or lunatic, being incompetent to enter into a contract, cannot be allotted shares of a company. "If directors, in ignorance of the fact of minority, allot shares to a minor, and enter his name on the register of members, the company can repudiate the allotment and remove his name from the register, when the fact of applicant's minority comes to its knowledge. The minor can also repudiate the allotment at any time during his minority. In either case, the, company must repay to minor all money received from him in respect of the allotted shares, and whether or not the minor should restore to the company the benefits he might have derived from the shares would be for the court to decide in view of the facts and circumstances of each case.

Removal of Membership

The term ‘Cessation’ means ‘Termination’. Just as there’s a process to add a member of the company, there’s a process to terminate that member. Terminating a member of the company can result in removal from the ‘Register of Members’. The following are the modes of removing a member of the company:

Transfer of Membership

* Here, the shares of a member are transferred to another person by the company in the name of the transferee.

* The name of the transferor is removed from the Register of Members.

* After transferring all the shares from the person to another person, the person is legally removed from the company.

Transmission of Membership

On the death of a shareholder/member of the company, his/her legal heir or representative becomes a member.

Surrender of Membership

A person is removed from the membership once he/she surrenders his shares, which requires ‘Acceptance on part of Board’.

Forefeiture of Membership

On account of Loss or selling of a share, the member is terminated from the company.

Share Buy Back

The person is terminated from the company if the company buys back its shares.

Liabilities of Members

A ‘Liability’ is a state of being legally responsible for something. This term is usually used in an organization to emphasize the responsibilities of a member of the company. The following are the liabilities of the member of a company:

1. To make shares if he/she is allotted as per the Act.

2. To pay call money or pay the due amount of shares.

3. To abide by the decision of majority when they act ‘bonafide’.

4. To contribute to the Asset of the company in case of winding up and when the shares are partly paid up.

Amendments of Pleadings under Order 6 Rule 17 of CPC

Order VI Rule 17 Code of Civil Procedure :

Amendment of pleadings – The Court may at any stage of the proceedings allow either party to alter or amend his pleadings in such manner and on such terms as may be just, and all such amendments shall be made as may be necessary for the purpose of determining the real questions in controversy between the parties.

Provided that no application for amendment shall be allowed after the trial has commenced, unless the court comes to the conclusion that in spite of due diligence, the party could not have raised the matter before the commencement of trial.”

Step by Step procedure for filing an application for Amendment of Pleadings

Step 1 – Firstly the Plaintiff or Defendant who wants to amend its pleadings can write an application for the amendment of pleadings to the concerned civil court

Step 2 – After drafting the application applicant needs to produce the application before the concerned civil judge.

Step 3 – He has to pay a required court fee under court fees Act, 1870.

Step 4- Applicant needs to tell the purpose of the alteration in his application.

Step 5 – Judge will read the application and if he thinks fit that this alteration or amendment is necessary for the purpose of determining the real questions in controversy between the parties Than he will grant permission for amendment for pleading.

Step 6 – After getting the order from the court, the applicant needs to file new pleadings within the prescribed time and if no time has been prescribed by the court then he needs to file it in 14 days from the date of order.

Step 7 – He also needs to give a copy of altered pleadings to the opposite party

Institution of Suit ( Order IV) CPC

What is the meaning of Suit to be commenced by plaint? What is Register of suits? Rule 1 and 2 of Order IV of Code of Civil Procedure 1908

Suit to be commenced by plaint and Register of suits are defined under Rule 1 and 2 of Order IV of Code of Civil Procedure 1908. Provisions under these Rules are:

Rule 1 Order IV of Code of Civil Procedure 1908 "Suit to be commenced by plaint"

(1) Every suit shall be instituted by presenting a plaint to the Court or such officer as it appoints in this behalf.

2) Every plaint shall comply with the rules contained in Orders VI and VII, so far as they are applicable.

Rule 2 Order IV of Code of Civil Procedure 1908 "Register of suits"

The Court shall cause the particulars of every suit to be entered in a book to be kept for the purpose and called the register of civil suits. Such entries shall be numbered in every year according to the order in which the plaints are admitted.