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Unit 8: Membership in a Company

Introduction Notes

A firm may be a member of any association or company licensed under this section, but on the
dissolution of the firm, its membership of the association or company shall cease.

A licence may be granted by the Central Government under section 25 on such conditions and
subject to such regulations as it thinks fit, and those conditions and regulations shall be binding
on the body to which the licence is granted, and where the grant is under sub-section (1), shall,
if the Central Government so directs, be inserted in the memorandum, or in the articles, or
partly in the one and partly in the other.
It shall not be necessary for a body to which a licence is so granted to use the word “Limited” or
the words “Private Limited” as any part of its name and, unless its articles otherwise provide,
such body shall, if the Central Government by general or special order so directs and to the
extent specified in the direction, be exempt from such of the provisions of this Act as may be
specified therein.

8.1 Member — Definition and Meaning

Section 41 provides that:

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

2. Every other person who agrees in writing to become a member of a company and whose
name is entered in its register of members, shall be a member of the company.
3. Every person holding equity share capital of a company, and whose name is entered as
beneficial owner in the records of the depository, shall be deemed to be a member of the
concerned company (vide Depository Act, 1996).
On this basis, there are two pre-requisites for a person to become a member of a company:
1. The agreement in writing to take shares of the company; and
2. The registration of his name in its register of members.
Besides, a person may also become a member of a company through the depository system.

Thus, a person can agree to take shares of a company either as the subscriber at the initial stage
of its formation or in any of the following manner:
1. By subscribing to its further or new shares;

2. On transfer of its shares from an existing member;
3. On acquisition or purchase of its shares (for example, take-over bid, renunciation of rights
shares by an existing member); and

4. On acquisition of its shares by devolution (for example, transmission of shares to legal
heirs of a deceased member, on insolvency, upon merger/amalgamation through court’s
order);
5. On conversion of convertible debentures or loans pursuant to the terms of issue of such
debenture or loan agreement respectively.
The fundamental difference between the subscribers who agree to take shares at the time of
formation of the company, and persons who agree to take shares later is that the former become

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