Membership of a company.

MEMBERSHIP OF A COMPANY (S.24 OF CAP 212)

One can become a member of a company by any one of the following ways: -.

1. By subscribing to the memorandum of association: A subscriber to the memorandum of association becomes a member on incorporation of the company in respect of the shares subscribed by him without any further act by him. He will be liable for whatever number of shares he has subscribed for up to the unpaid amount on those shares. A Subscriber to the memorandum cannot have canceled his membership on the ground that he was induced to become a subscriber by the promoters of the company.

2. By a director undertaking to take and pay for his qualification shares. [s. 191]

3. By agreeing in writing to become a member in any of the following ways provided the name is entered in the Register of Members of the Company.

• By application and allotment

• By taking a transfer of shares

• By transmission of shares

Membership may be acquired from an existing member by purchase of the shares of the transferor and lodging with the company a transfer deed duly executed by both the transferor and the transferee together with the share certificate. When the transfer is registered by the company, the name of the transferee is entered in the register of members of the company in place of the transferor.

In the case of transmission, a person can become a share holder in consequence or by reason of the death or bankruptcy of a member or any other event constituting transmission. But that person will become a member only when he applies in writing requesting the company to make him a member and the company puts his name on the register of members.

4. By allowing his name to be on the register of members or otherwise holding himself out as a member or allowing himself to be held out as a member. A person will be deemed to be a member if he allows his name to be on the register of members or otherwise holds himself or allows himself to be held out as a member. Any person competent to enter into a contract can become a member of the company.  (Read s. 121 on remedy for a person whose name is entered erroneously or retained)

Who can become a member?

Any person competent to enter into a contract can become a member of a company. There is no prohibition on minors being shareholders or members although a company may refuse to accept a minor as a shareholder. However an infant can become a member of a company but he or she must act through parent or guardian. When minor applies for and receives allotment of shares, the same rules prevails as when he subscribes to the memorandum. Applying ordinary contract law rules, a contract to purchase shares is voidable by the minor within a reasonable time of attaining the age of majority. If the minor repudiate the contract, he will not be liable for future calls but cannot recover the purchase price unless there has been a total failure of consideration Steiberg v. Scala (Leeds) Ltd. (1923) 2 Ch 452, which is likely to be the case. Until minor repudiates, the minor has full rights of membership. 

Partnership firm

A firm cannot be registered as a member because it is not a legal person and partners may not remain constant. A firm however may purchase share in a company in the individual names of its partners as joint shareholders.

Insolvents

A bankrupt person May be a member of a company although the beneficial interest in his shares is vested in the trustee in bankruptcy as from time to time when is adjudged bankrupt. Unless the articles provides to the contrary, a shareholder does not cease to be a member of a company on becoming bankrupt.

Companies

A registered company cannot become a member of another company unless authorized by its memorandum to hold such shares. A company cannot hold its own shares. Cannot be a member of itself. A subsidiary company cannot hold shares in its holding company, except where the subsidiary company is acting as personal representative or trustee and the holding company has no beneficial interest under the trust.

Register of members (ss 115 – 127 of Cap 212)

Every company must keep a register of its members at its registered office stating the names, addresses and occupation, if any, and number of shares held by each member and the date which each person became ( ceased) to be a member. If there more than 50 members there must be an index (s.116). The register is to be open for inspection by members and the public during business hours and copies must be sent on request within ten days on paying prescribed fee.

Rectification of the register

The court may order rectification of the register if any one is improperly omitted or included in it (s. 121). This is in fact the procedure where by title to shares is established.

Cessation of membership

A person ceases to be a member of the company in any of the following ways: -

a. By transferring his shares to another person. However, the transferor will continue to be a member until the shares are registered in the name of the transferee.

b. By forfeiture of his shares on non-payment of calls due

c. By a valid surrender of shares to the company

d. By death but until the shares are transmitted to his legal heirs, his estate will be liable for any money due on the shares;

e. By the company selling his shares in exercise of its right under the articles of association of the company (e.g. right to lien)

f. By the Court or any other competent authority attaching and selling the share in satisfaction of decree or claim

g. By redemption of the preference shares;

h. By the official assignee disclaiming his shares on his adjudication as an insolvent

i. By rescission of contract of membership on the ground of misrepresentation or mistake.

j. By the company buying back the shares

Rights of members

The members of a company enjoy various rights in relation to the company. These rights are conferred on members of the company by Companies Act or by the memorandum and articles of association of the company or by the general law. These rights are such as right to vote, right to demand a poll or join in the demand for poll, right to transfer shares, rights to participate in appointing directors and auditors in the annual general meeting, rights to receive dividend when declared. 

Voting Rights of the Members

Every member of a company limited by shares holding equity shares with voting rights will have votes in proportion to his share in paid up equity capital of the company. In respect of equity shares with differential rights, voting rights shall depend on the prescribed rules.

Generally, preference shareholders like debenture holders do not have any voting rights. The rights to vote at meetings are usually restricted by providing that they shall have no rights to attend such meetings. However, they can vote on matters directly relating to the rights attached to the preference share capital. Any resolution for winding up of the company or for the reduction or repayment of the share capital shall be deemed to affect directly the rights attached to preference shares. Whenever preference shares are, however, authorized to vote by poll, their shares are weighted more than other classes. Weighting here means so many votes will be allocated to each share a member holds so that when such member votes, his votes are calculated by multiplying each share by the number of votes attached to each share.

Every equity shareholder with voting rights has a right to vote at a general meeting. However, a member’s voting rights can be revoked if that member does not make payment of calls or other sums due against him or where the company has exercised the right of lien on his shares.

Liability of members

Liability of a member depends upon the nature of the company. (See types of companies on the basis of liability) 

No Notice of Trust

The company is not allowed to enter any notice of trust on the register – thus the registered owner is treated as the beneficial owner so far as the company is concerned even if he is a trustee for someone else.

Sometimes the shares of a company belonging to a person may be registered in the name of other person. The person in whose name the shares are registered is the trustee and the person to whom the shares belong is the beneficiary of the shares. 

For all practical purposes, a trustee is the shareholder and is liable for calls, even though the calls exceed the value of the trust property in his hands (Phoenix Life Ass. Co. Re.(1862) 31 L.J. Ch. 749). The trustee, however, is entitled to be indemnified by the beneficiary who is ultimately liable for calls [Hardoon v. Belilios (1901) A.C. 118.  Section 122 clearly states that no notice of any trust, express, implied or constructive, shall be entered on the register of members. The object of S. 122 is 

• To relieve the company from any obligation to take notice of the rights of third parties in respect of shares registered in the names of any members, and

• To preclude any person claiming an equitable interest in shares from treating the company as trustee in respect thereof.