Who can become the members of the company & under what circumstances membership can be terminated ?

All persons who are competent to contract may, in general, become members of a company. There are, however, some special considera­tions to which reference must be made.

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(1) Company.

A company may become a member of another com­pany if it is authorised by its memorandum or articles, or if it takes the shares of another company by way of a Compromise or Arrange­ment.

A company cannot, however, buy its own shares. Also, subject to certain exceptions given in Section 42, a company cannot buy shares of its holding company.

(2) Hindu undivided family.


A Hindu undivided family can purchase shares in a company through its Karta, i.e. the karta only shall become the member of the company.

(3) Firm.

A partnership firm cannot become a member of a com­pany, as it is not a legal person having a separate entity from that of partners. Partners may be registered as joint holders in which case each of them becomes a member.

(4) Joint holders.

The shares of a company may also be held jointly by two or more persons. In the case of. a public company every joint shareholder is counted as a separate member (Narandas Man Mohandas Ramji & Sons vs. Indian Manufacturing Co. Ltd.) but in the case of a private company joint holders are treated as a single member [Section 3(l)(iii)].

(5) Registered society.

A society registered under the Society registration Act, I860, is competent to hold shares in a company in its own name, if it is so authorized by its memorandum or articles of association.

(6) Insolvent.


An insolvent may be a member of the company (Morgan vs. Grey), although the beneficial interest in his shares will be with the Official Receiver. He does not cease to be a member of the company on becoming insolvent, unless provided otherwise by the articles of association.

(7) Minor.

A minor or lunatic, being incompetent to enter into a contract, cannot be allotted shares of a company. “If directors, in ignorance of the fact of minority, allot shares to a minor, and enter his name on the register of members, the company can repudiate the allotment and remove his name from the register, when the fact of applicant’s minority comes to its knowledge. The minor can also repudiate the allotment at any time during his minority. In either case, the, company must repay to minor all money received from him in respect of the allotted shares, and whether or not the minor should restore to the company the benefits he might have derived from the shares would be for the court to decide in view of the facts and circumstances of each case.

Termination of Membership :

A person may cease to be a member of a company, at any time, one of the following ways:

(1) When he transfers his shares and the transfer is duly registered in the books of the company.


(2) By forfeiture of shares for non-payment of calls, if articles so provide.

(3) By a valid surrender of shares. It is a short cut to forfeiture as it involves no legal formalities.

(4) When the company sells the shares, in exercise of its right or line over them, by giving a 14 days notice to a debtor shareholder.

(5) When a shareholder dies and his shares stand transmitted to his legal representative, upon registration of the share;, in the succes­sor’s name.

(6) When he is declared insolvent and the Official Assignee dis­claims the shares under his right of ‘disclaimer of onerous properly.’

(7) By repudiating the contract of membership on the ground of misrepresentation in the prospectus or on the ground of irregular allotment.

(8) By conversion of share certificate into share warrant, unless the articles provide otherwise. In this case one ceases to be a ‘member’ in the strict sense of the term, that is, his name being removed from the Register of Members, although he continues to be a shareholder of the company.

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