Membership of Company: Jaiib Paper 3 (Module D)

Membership of Company: Jaiib Paper 3 (Module D), Unit 20

Dear bankers,

As we all know that is Membership of Company for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are Membership of Company (Unit-20), Commercial Laws with Reference to Banking Operations (Module D), Legal & Regulatory Aspects of Banking -Paper 3.

Who is a Member of Company?

According to the Companies Act, 2013 the term member of a company means:

  • The subscribers of the memorandum of the company who shall be deemed to have agreed to become member of the company and on its registration shall be entered as member in its register of members
  • Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members.
  • 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.

Various Modes Of Becoming A Member Of A Company

  • By Subscribing to Memorandum of Association
  • Membership by Allotment of Shares
  • Transfer of Shares
  • Transmission of Shares
  • Membership by Acquiescence
  • Joint Membership

Who can be Members of a Company

  • Any person competent to Contract – Every person who is competent to contract can become member of company.
  • Minor and persons of Unsound Mind (Under Indian Contract Act 1872):  Minor and persons of Unsound Mind  cannot be member, as they are incompetent to contract
  •  Company as Member: As a company is a legal person it can become a member of another company.
  • Partnership Firm: Since a partnership is not a legal person, it cannot buy shares in its own name and thus become member of the company.
  • Registered Society (Under Societies Registration Act 1860):  can hold shares in a company.
  • Non-Residents:  A NRI cannot become a member without complying with the requirements of the FEMA 1999 and without permission of RBI.
  •  Fictitious Persons: Any person whom makes an fictitious name an application to a company, induces a company to allot or register any transfer of shares to him or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to 5 years.

Cessation Of Membership In A Company

The membership in a company ceases in case of any of the following:

  • If a member transfers his shares to another person.
  •  If a member’s shares are forfeited
  • If the shares are sold pursuant to a decree of a Court.
  • If the member surrenders his shares to the company where such surrender is permitted.
  • If he rescinds the contract to take the shares, e.g. on the ground of misrepresentation in the prospectus.
  • If a member is adjudicated insolvent (shares and other properties of an insolvent vest in the Official Receiver or Assignee).
  • On the death of a member: However, the estate of the deceased member, remains liable until the shares are registered in the name of his legal representative.
  • If redeemable preference shares are redeemed.
  • If the company is being wound up. In such a case a member remains liable as a contributor and is also entitled to share in the surplus assets, if any.

Right and Duties (Liability) of Members of a Company

  • Unlimited Liability Company: The member is liable in full for all the debts of the Company contracted during the period of his membership.
  • Company Limited by Guarantee: The member is liable to contribute a sum of money agreed and specified In the liability clause of memorandum of association in the even of being wound up.
  • Company limited by shares: The member is liable to pay the full nominal value of the shares and the member ends there.

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