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The Membership Company Act of 1956


The member or shareholder of the company is the person who collectively constitutes the company as a corporate entity. The term member shareholder and holder of share are used interchangeable 58comp.cas 563.they are synonymous in the case of the company limited by shares. A company limited by .but in the case of an unlimited whole capital is held in definite shares .but in the case of an unlimited company or a company limited by guarantee and having a share capital and an unlimited company whose capital is held in definite shares .but in the case of an unlimited company or a company limited by guarantee, a member may not be shareholder, for such a company may not have a share capital.

Who can become a member?

Any person who is competent to contract of the Indian contrast may become a member of a company .this is company .this is subject to the provision of the memorandum and the article of the company .the article may provide that certain persons cannot become member of the company.

A minor is incomplete to become the member of a company an agreement with a minor is absolutely void.

Section 41

Definition of member

(1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of a company, and on its registration, shall be entered as members in its register of members.

(2) Every other person who agrees in writing a become a member of a company

Section 42

Membership of holding company

(1) Except in the cases mentioned in this section, a body corporate cannot be a member of a company which is its holding company and any allotment or transfer of shares in a company to its subsidiary shall be void.

(2) Nothing in this section shall apply -

(a) Where the subsidiary is concerned as the legal representative of a deceased member of the holding company; or

(b) Where the subsidiary is concerned as trustee, unless the holding company or a subsidiary thereof is beneficially interested under the trust and is not so interested only by way of security for the purposes of a transaction entered into by it in the ordinary course of a business which includes the lending of money.

(3) This section shall not prevent a subsidiary from continuing to be a member of its holdings company if it was a member thereof either at the commencement of this Act or before becoming a Subsidiary of the holding company, but except in the cases referred to in sub-section (2), the subsidiary shall have no right to vote at meetings of the holding company or of any class of members thereof.

(4) subject to sub-section (2), sub-sections (1) and (3) shall apply in relation to a nominee for a body corporate which is a subsidiary, as if references in the said sub-sections (1) and (3) to such a body corporate included references to a nominee for it.

(5) In relation to a holding company which is either a company limited by guarantee or an unlimited company, the reference in this section to shares shall, whether or not the company has a share capital, be construed as including a reference to the interest of its members as such, whatever the form of that interest.

How to become a member

A person may become a member so a company in the following ways:

1. Member of subscription: the subscribers of the memorandum of association of a company are demined to have agreed to become it member in the register of member (sec.41 (1)).Neither application nor allotment of shares is necessary.

2. Members by application and registration: apart from the subscribed of memorandum, every other person who agrees in writing to become a member and whose name is entered in the register of member is by the company’s act 1960.

3. Members by qualifying shares: The company act 1956 does not require directors to hold any shares at all. If Article of association of a company require a person to hold qualification shares then he can be appointed as the director only if he is takes or signs an undertaking to take ant pay for the qualification share (sec.299(1)(b))he thus become a member of the company is sec.(266(2)).

Cessation of membership

1. Cessation of membership by an act of the parties

A person may cease to be the member of the company:

If he transfers his shares to another person.

If his shares are forfeited

If the company sells his share under some provision in the article

If he rescinds the contract to take shares on the ground of misrepresentation in the prospectus or on the ground of irregular allotment

If redeemable preference share are redeemed

If he surrender his share .were surrendered in permitted

If she warren r issued to him is exchange of fully paid shares

2. Cessation of membership by operation of law

Insolvency The shares of an insolvent vest official receiver or assignee then the official receiver or assignee transfers his shares to another person ,the insolvent ceases to be a member on the registration of the transfer as an member. But the insolvent remains a member as long as his name appears in the register of the company.

Death. The desisted member’s estate however remains liable until the share is registered in the name of his legal representative.

Sale of share in execution of a decree of court

Winding up of a company. During the winding up of a company a member continuous to b liable as a contributory and it is also entitled to share in the surplus asset if any.

Rights of members

Statutory right:

There are the rights which are conferred on the member by the company act. These rights cannot be taken away or modified by any provision in the memorandum or the article.

Documentary right:

There are the right given to the member by the memorandum and article of association.

Legal right :

These are the right given to the member by the general law.

Proprietary right :

The right to participate ratably in dividend distribution when ordered in the discretion of the directors.

Remedial right :

The right to information and information and inspection of company record.

Liability of members

The liability of the member of a company depends on the nature of the company.

Company with unlimited liability: Each member is liable in full for all the debts contracted by the company during the period he was a member.

Company limited by shares: Each member is liable to pay the full nominal value of the share held by him. If he has already paid a part of the amount on the shares his liability is limited to the unpaid amount on the shares in respect of which he is a member.

Company limited my guaranty: Each member is liable to contribute the amount guarantee by him to b paid in the event of winding up of the company.

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