How to become a member of a Company?

Introduction:

A member in general parlance is someone who is a part of a group and has a say in the decisions taken by a group. A member is an important person of a company as it helps the company to grow and achieve its objective. The individual can become a member of a company by agreeing to certain conditions as listed in the companies act. A member who is legally competent to contract and of sound mind can join the company as a member and a minor cannot become the member except in certain situations. A minimum number of members are required to form a company which varies as per the type of company. The modes of acquiring the membership depending on the member and director of the company in whatever way they want to adopt. Members are liable to the directors and follow their orders in the prescribed manner. The breaching of the rules of the company may result in the termination of membership from the company.

Section 2 (55)[1] of the Companies Act

Member, in relation to a company, means

•  The person who is subscribing to the memorandum of company and shall be deemed to accept the membership of a company and registered his name on the register of the company is officially considered as a member of the company.
• A person accepts in writing to be a part of the company as a member and whose name is listed in the register of the company is a member of the company.
• Any person who owns shares of the company and the person’s name is registered as a beneficial owner in the records of a depository.

How one can become a member of a company?

Two important characteristics must be included to make the person eligible for membership which is as follows-

• A person should enter into an agreement to become a member.
• The name of the person should be filled in the register of members

In Balkrishan Gupta vs swadeshi poly tex ltd. (1985)[2] it was held that “the two conditions namely that there is an agreement to become a member and that his name is entered in the register of members of the company are cumulative. Both the conditions have to be satisfied to enable him to exercise the rights of a member.” so the rights of members are cleared by fulfilling the above two conditions.

Ways to acquire the Membership of a Company

1. Subscribing to the memorandum of the company: A memorandum is the document of a company that entails crucial information of the company such as the trades with other companies, rules & guidelines, and objectives of the company. The person who subscribes to the memorandum is considered a member which also accepts the membership of a company.
2. Agreeing by the written submission: Any individual who is applying for shares of a company can become a member when the shares are allocated to him and he is notified by the notice issued to him. The name of the person should be mentioned in the register of members. The rule of the contract is followed here as the offer and acceptance of shares are necessary for the membership of the company.
3. Transmission of shares: A person can become a member if he is in relation to the deceased person and can acquire the share of the expired person after his death. The person should be the legal representative of the deceased person and entitled to hold the shares of the person. The company then transfers the shares to the respective person and mentions the name of the member in the register. The deceased person before his death has made a legal representative who will own the shares if the person dies. The person should give in writing that he is willing to become the legal representative then the shares will be allocated to the desired shareholder only after the death.
4. Through estoppel: If a person gives assent to being a member of the company without any sufficient cause and allowing the registration of name on the register of the company will be declared as a member and therefore liable for it. There is an option of denying the membership by clarifying his grounds by not entering the name in the register.
5. Allotment of shares: A person can become a member by submitting an application for shares and the company will allocate the shares in the name of the person who is entitled to it.

Who can become a member of the company?

1. A company being the legal person can become a member of another company and is eligible to form the contract. A company can invest in the other company shares or vice-versa and become the owner of shares. According to Sec 19 of the act, no company can become a member of its own company by itself. But the company can hold the shares of other companies. The subsidiary company was prevented from becoming a member of the holding company excluding some exceptional circumstances.
2. As in a general contract, a contract by a minor is not legally enforceable as he is incompetent to contract. A contract by a minor to hold shares of the company is also void ab initio. But he can become a member of the company with the help of his legal guardian. The tribunal (as per companies act 2013) in the case of Nandita Jain vs Benett Coleman & co ltd.,1978[3] stated that if a minor makes an agreement in writing in order to become the member, on behalf of the minor the official guardian is signing the agreement and the shares are paid fully then the agreement is legally binding. If a minor reaches his majority age then he didn’t by default become a member of the company instead, he has to register himself again in the register of the company to hold the position of the member.
3. A person who subscribes to the memorandum of association, agreeing to the conditions stated in the memo, and considered himself to be a member of the company is eligible to become the member. The name of the person should be filled in the register of the company. After the registration of the name, the member can also hold the shares of the company but didn’t become the shareholder of the company until he was registered. There is a difference between a shareholder and a member of a company. A person can become a member without holding the shares but the shareholder has to acquire some shares. A member is an essential component of the company while shareholders just hold a little part of the company.
4. An insolvent holds the power to become a member of the company but the beneficial interest in his shares will be with the Official Receiver only.
5. A firm cannot become a member of a company as it isn’t a legal person, though a partnership firm can acquire shares in a company in the individual name of partners as joint holders.
6. A foreigner is eligible to become a member after taking permission from RBI. In case he turns into an alien enemy in the future, he will be removed instantly from the membership of the company.
7. If a person owns the shares in the name of a fictitious person, that person can become a member but will be punished for impersonation under section 68-A of the act.

Conclusion

The process to gain membership is long and passes through certain conditions. The members play an imperative role in the development of the company. The members should engage in an agreement and their name should be entered in the register of the company to hold the membership of a company. According to Section 150 of the companies act each company requires a register of members which holds all the info of the members including the date at which the member was registered, the date at which a person ceased to be a member, and the shares held by the members. The register is prima facie evidence which contains the records of membership. A company cannot become a member of its own company and only directors can choose who can be a part of the company.  The modes of acquiring the membership are numerous but if the person tries to obtain the membership through illicit means there are provisions to punish the offender with stringent laws. If the person illegally holds the membership then first he is barred from the position of member and also faces rigorous imprisonment.

References:

[1] Section 2 (55) companies act, 2013

[2] Balkrishan gupta vs swadeshi polytex ltd. (1985) 1985 AIR 520

[3] Nandita jain vs benett coleman & co ltd.,1978