Company Membership refers to the relationship between a person or entity and a company by holding its shares. A member is an individual or entity listed in the company’s register of members. Members enjoy various rights, such as voting at meetings, receiving dividends, and accessing financial reports. They also have certain obligations, like paying any unpaid amounts on their shares.
In a company, shareholders are typically its members, but not all members may be shareholders (e.g., in a guarantee company). The concept of membership is crucial for the governance and ownership structure of a company. Members influence key decisions through voting and can participate in general meetings, thus playing a significant role in the company’s management and growth.
Categories of Members:
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Subscribers to the Memorandum
These are the original members who sign the Memorandum of Association (MOA) at the time of the company’s incorporation. They automatically become members and cannot revoke their membership until the company is dissolved or they transfer their shares.
- Shareholders
Shareholders are individuals or entities who purchase shares of the company after its formation. They become members by buying shares and getting their names entered in the company’s register of members.
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Beneficial Owners
These members hold shares in a company through a depository system, where the depository is the registered owner but the real ownership rights, like voting and dividends, rest with the beneficial owner.
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Nominal Members
These members hold shares on behalf of another person, typically as nominees or agents. They don’t have substantial rights or interests in the company beyond holding shares on someone else’s behalf.
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Minor Members
Minors can become members of a company through inheritance or gift, though they are limited in exercising rights like voting. A guardian usually manages their membership.
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Past Members
These are individuals who were once members of the company but have ceased to be so by transferring or forfeiting their shares. Past members may still be liable for company debts contracted while they were members.
Modes of Acquiring Membership:
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Subscription to the Memorandum
This is the initial mode of acquiring membership when a company is formed. Individuals or entities subscribing to the Memorandum of Association (MOA) during the company’s incorporation become its original members. They sign the MOA and agree to take up shares in the company.
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Purchase of Shares
Existing or new members can acquire membership by purchasing shares of the company. This is the most common mode for individuals or entities to become shareholders and members. Shares can be bought through:
- Public Offers: Shares offered to the public through Initial Public Offerings (IPOs) or follow-on public offerings.
- Private Placements: Shares sold to a select group of investors, such as institutional investors or high-net-worth individuals.
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Transfer of Shares
Membership can be acquired by purchasing shares from an existing shareholder through a transfer. This involves executing a share transfer deed and registering the transfer with the company. The new shareholder then becomes a member.
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Inheritance or Gift
Shares can be inherited or received as a gift. When a shareholder passes away, their shares are transferred to their heirs or beneficiaries. Similarly, shares can be gifted to another individual, who then becomes a member.
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Conversion of Debentures
In some cases, debenture holders may have the option to convert their debentures into equity shares. Upon conversion, they become members of the company.
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Allotment of Shares
In private companies, shares may be allotted to individuals or entities as part of a new issue of shares. The allotment process involves offering shares to existing or new investors, and those who accept the offer become members.
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Membership by Guarantee
In companies limited by guarantee (often non-profits), membership is acquired by agreeing to guarantee a certain amount in the event of the company’s winding up. Members do not hold shares but have a role defined by the company’s guarantee provisions.
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Joining as a Partner in a Partnership Company
In some cases, particularly in partnership firms or limited liability partnerships (LLPs), members may join by becoming a partner. The partnership agreement governs the terms of membership and participation.