“Member” in relation to a company means, one who has agreed to become the member of the company by

entering his name into the ‘Register of Members’. Every person who has agreed in writing to become a
part of the company and also holds shares of the company is considered the ‘Member of the Company’
and is said to hold membership in a company. The name of the member of the company is entered as
‘Beneficial owner in the record of depository’.

Understanding the rights and liabilities of members in a company is essential for effective governance,
transparency, and accountability.
Members should be aware of their rights to participate in decision-making processes, access information,
and receive dividends, while also understanding their liabilities, such as fiduciary duties and potential
personal liability.
By being well-informed and adhering to their obligations, members can contribute to the growth and
success of the company while protecting their interests and minimizing legal risks.

Modes of Acquiring Membership

In order to acquire the membership of the company, the following two elements must be presented:
•An Agreement to become a member.
•Entry of the name of the person so agreeing, in the Register of members of the company.

1.Subscribing to MOA
•If a person agrees to sign the memorandum and pledge his presence on the board of members, he
becomes the member of the company.
•Names of the people who have agreed to join the membership of the company should be entered in
Register of Members.
•Along with the agreement, if they’ve agreed to share the company’s shares they become the Shareholders
of the Company.

2.Agreement in Writing
•A person would become the member of the company if he ‘agrees in writing’ and gets his name entered
in the register of members of the company.
•A shareholder would also become a member of the company if he ‘agrees in writing’, and by the
following methods:
-By transfer of shares
-By transmission of shares
-By Estoppels (Membership Without sufficient Cause).

The enlisted person should be capable of entering into a contract with the company. But a bearer of share
warrant is not a member of the company. Finally, to become the registered member of the company the
person should be satisfactory as an asset to the company.

Termination of Membership
The term ‘Cessation’ means ‘Termination’. Just as there’s a process to add a member of the company,
there’s a process to terminate that member. Terminating a member of the company can result in removal
from the ‘Register of Members’. The following are the modes of removing a member of the company:

1.Transfer of Membership
Here, the shares of a member are transferred to another person by the company in the name of the
transferee.
The name of the transferor is removed from the Register of Members.
After transferring all the shares from the person to another person, the person is legally removed from the
company.
2.Transmission of Membership
On the death of a shareholder/member of the company, his/her legal heir or representative becomes a
member.
3.Surrender of Membership
A person is removed from the membership once he/she surrenders his shares, which requires ‘Acceptance
on part of Board’.
4.Forfeiture of Membership
On account of Loss or selling of a share, the member is terminated from the company.
5.Share Buy Back
The person is terminated from the company if the company buys back its shares.

Rights of Members:

1.Voting Rights: Members typically have the right to vote on matters of importance within the company,
such as electing directors, approving company policies, and major business decisions.
2.Dividend Rights: they have the right to receive dividends if the company generates profits and declares
dividends.
3.Right to Information: Members have the right to access company information, including financial
statements, annual reports, and other relevant documents.
4.Right to Transfer Shares: Depending on the company’s constitution, members may have the right to
transfer their shares to others, subject to certain restrictions and compliance with legal provisions.
5.Right to Participate in Meetings: Members can attend and participate in general meetings, annual
general meetings, and extraordinary general meetings to express their views and contribute to
decision-making processes.6.Right to Inspect Books and Records: Members often have the right to
inspect the company’s books, records, and accounts to ensure transparency and accountability.
7.Pre-emption Rights: Shareholders may have pre-emption rights, which allow them to maintain their
proportional ownership by having the first opportunity to purchase newly issued shares.
8.Right to Remove Directors: Members, especially shareholders, may have the right to remove directors
from their positions if they believe their actions are detrimental to the company’s interests.

Liabilities of Members
A ‘Liability’ is a state of being legally responsible for something. This term is usually used in an
organization to emphasize the responsibilities of a member of the company. The following are the
liabilities of the member of a company:
•To pay for the shares if he/she is allotted as per the Act.
•To pay call money or pay the due amount of shares.
•To abide by the decision of the majority when they act ‘bonafide’.
•To contribute to the Asset of the company in case of winding up and when the shares are partly paid up.

1.Liability for Shares: Shareholders generally have limited liability, meaning their personal assets are not
at risk beyond the value of their investment in the company.
2.Fiduciary Duties: Members, particularly directors, owe fiduciary duties to the company and its
shareholders, requiring them to act in good faith, exercise due care, and prioritize the company’s interests.
3.Liability for Misconduct: Members can be held personally liable if they engage in fraudulent activities,
misrepresentation, or any illegal actions that cause harm to the company or its stakeholders.
4.Liability for Unpaid Contributions: Members may have an obligation to contribute capital or resources
to the company as agreed upon during the formation or subsequent fundraising activities. Failure to fulfill
these obligations can result in liability.
5.Liability for Unlawful Distributions: Members, particularly directors and officers, can be held
personally liable if they authorize unlawful distributions of company assets, such as paying dividends
when the company is insolvent or unable to meet its obligations.
6.Liability for Breach of Duty: Members who breach their duties, such as confidentiality, loyalty, or
non-compete agreements, may face legal consequences and be held accountable for any damages caused
to the company.
7.Joint and Several Liability: In certain circumstances, members may have joint and several liability,
meaning they can be individually or collectively responsible for the company’s debts and obligations.
This often applies to partnerships or situations where members have provided personal guarantees.

Prepared and compiled by

Vishal Soni
PCS LLB BCOM