Page 110 - DCOM106_COMPANY_LAW

Unit 8: Membership in a Company

4. In the case of a company limited by guarantee having no share capital or an unlimited Notes
company having no share capital, there will be only ‘members’ but not ‘shareholders’.

Self Assessment

Fill in the blanks:

1. A .....................................may also become a member of a company through the depository
system.
2. A person can agree to take shares of a company either as the .......................... at the initial
stage of its formation.
3. In the case of a company limited by shares, the persons whose names are put on the
register of members, are ....................................

4. Sometimes a distinction is maintained between a member and a .............................in the
case of a company having a share capital.

8.3 Modes of Becoming Member

A person may become a member or a shareholder of a company by any of the following ways:
1. By Subscribing to the Memorandum of Association: The subscribers of the memorandum
of a company are deemed to have agreed to become members of the company only by
reason of their having signed the memorandum. A subscriber to the memorandum
becomes a member, the moment the company is registered and it is not necessary that
their names must have been entered in the register of members.
Further, by subscribing the memorandum every one of the subscribers is deemed to have
contracted to become a shareholder in respect of the shares he subscribed for.

Task M Company Limited issued 2,00,000 equity shares of 10 each. You are allotted 100
shares. Explain any ten rights you have as a member of the company.

2. By Agreement and Registration: Section 41(2) provides that, apart from the subscribers of
the memorandum, ‘every other person who agrees in writing to become a member and
whose name is entered in its register of members shall be a member of the company’.
It follows that except in the case of the subscribers to the memorandum, a person does not
become a member of the company until his name is duly recorded in the register of
members.

Registration of the name of a person as a member of a company may arise:
(i) Upon application and allotment.
(ii) By transfer. The member may acquire shares from an existing member by sale, gift
or some other transaction.
(iii) By transmission. Here a person becomes a shareholder by transmission of shares to
him through death, lunacy or insolvency of the member of a company.

(iv) By estoppel. This arises when a person holds himself out as a member, or knowingly
allows his name to remain on the register, when he has actually parted with his
shares. In the event of winding up, he will be liable, like other genuine members, as

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