Introduction

WHO IS A MEMBER?

A member (or shareholder) of a company is a person or entity registered in the company’s

Register of Members and holds shares or an interest in the company.

Under the Companies Act, 2013, a member is a person or entity that is registered as a
shareholder in a company's register of members. Members play a vital role in a company's
governance, with rights and responsibilities based on the type of company.

Definition (Section 2(55) of the Companies Act, 2013)

According to the Act, a member is:

 A subscriber to the Memorandum of Association (MOA) at incorporation.

 A person whose name is entered in the register of members after acquiring shares.
 A person who has acquired membership by transmission of shares (inheritance,
transfer, etc.).

HOW TO BECOME A MEMBER?

A person or entity can become a member of a company in the following ways:

2.1 By Subscription to the Memorandum of Association (MOA)

 The initial subscribers to the MOA automatically become members upon company
incorporation.
 Their names must be entered in the register of members.
 When a company is incorporated, the persons who sign the Memorandum of
Association (MoA) automatically become the first members of the company.
 Their names are entered into the Register of Members.
 Example: If five individuals start a company and sign the MoA, they are the first
members.

2.2 By Share Purchase or Allotment

 A person can purchase shares in an existing company or acquire them through

allotment by the company.
 Once the shares are allotted and the person’s name is entered in the register of
members, they officially become a member.
 A person can buy shares in two ways:

A. Direct Allotment of Shares

Companies (especially public ones) issue shares in different ways:

Initial Public Offering (IPO) – For the general public when the company is listed on the
stockexchange.
Private Placement – For select investors like venture capitalists.
Rights Issue – For existing shareholders to buy more shares.
B. Transfer of Shares

 An existing shareholder can sell/transfer their shares to another person.

 The process involves:
1. Executing a Share Transfer Deed (as per the company’s Articles of
Association).
2. Payment of stamp duty (as applicable).
3. Registering the transfer in the company’s Register of Members.
 Private companies may restrict share transfers (as per their Articles).

1.3 By Transmission of Shares

If a member dies, becomes insolvent, or mentally incapacitated, their shares are automatically
transferred to:

 Their legal heir (in case of death).

 Their nominee (if registered).
 The official receiver (in insolvency cases).

No need for a transfer deed, but proof of succession is required.

 In case of death, insolvency, or inheritance, legal heirs or representatives may acquire

membership.
 Membership can also be transferred due to a court order.

2.4 By Agreement in Companies Limited by Guarantee

 In a company limited by guarantee, members do not own shares but provide a

guarantee of a fixed sum in case of winding up.
 Membership is based on agreement rather than shareholding.

4. By Agreement or Contract

A person can become a member through a contractual agreement, such as:

 Investment Agreement (where investors receive shares in return for funding).

 Joint Venture Agreements (where partners agree to hold shares in a new entity).
 ESOP (Employee Stock Ownership Plan) – Employees get shares as part of
compensation.

5. By Holding Shares as a Beneficiary Owner

Sometimes, shares are held in a nominee’s name, but the real owner (beneficiary) is another
person or entity.

 Example: A company holds shares on behalf of an investor in a trust account.

 Some jurisdictions (like India under SEBI laws) allow depositories (e.g., NSDL,
CDSL) to hold shares electronically, while the actual owner remains the
beneficiary.
6. By Court Order or Legal Process

A person may become a member through:

 Mergers, Acquisitions, or Amalgamations – If a company is merged with another,

shareholders of the old company may automatically become members of the new
entity.
 Corporate Restructuring – Courts may order share transfers in cases of fraud,
oppression, or mismanagement.

2. TYPES OF MEMBERS

Type Description
Original Members Initial signatories of the Memorandum of Association.
Equity Shareholders Holders of equity shares (with voting rights).
Preference Shareholders Holders of preference shares (priority in dividends but
limited voting rights).
Minority Shareholders Hold a small percentage of total shares.
Majority Shareholders Control more than 50% of shares and voting rights.

Original Members (Subscribers to the Memorandum)

 These are the first members of the company who sign the Memorandum of
Association (MoA) at the time of incorporation.
 Their names are automatically entered in the Register of Members.
 Example: If five people form a company and sign the MoA, they are the original
members.

2. Equity Shareholders (Ordinary Members)

 These members hold equity shares, giving them voting rights in the company.
 They participate in the profits and losses of the company.
 Their liability is limited to the amount unpaid on their shares.
 Right to vote: They can vote in general meetings on important company decisions
(e.g., appointment of directors, mergers).

3. Preference Shareholders

 They hold preference shares, which give them priority in dividends but limited
voting rights.
 If the company is liquidated, preference shareholders are paid first, before equity
shareholders.
 They can only vote on special matters like winding up or alteration of share rights.

4. Minority Shareholders

 These members own a small percentage of shares, usually less than 50%.
 They have limited influence over company decisions.
  Company laws in many countries protect minority shareholders from unfair
treatment by majority shareholders.

Example of Minority Protection:

 In India (Companies Act, 2013) and the UK (Companies Act, 2006), minority
shareholders can challenge oppressive actions by the majority.

5. Majority Shareholders

 They own more than 50% of the company’s shares.

 If they own more than 75%, they can pass special resolutions without opposition.
 They control key decisions, such as appointing directors and approving mergers.

6. Nominee Members

 A person whose name is registered as a member on behalf of another person.

 The real owner (beneficiary) remains hidden, while the nominee holds the shares
legally.
 Example: In joint ventures or trusts, shares may be held by a nominee for secrecy or
convenience.

7. Corporate Members (Company as a Member)

 A company or legal entity (not an individual) can become a member of another

company.
 Usually, a company holds shares in another company as an investment or
subsidiary relationship.
 Example: A parent company holding shares in its subsidiary.

8. Government Members

 In government-owned companies (PSUs), the government itself is a shareholder.

 Example: In India, ONGC, SBI, and NTPC are government-owned companies
where the Government of India is a major member.

9. Dormant Members

 These members hold shares but do not actively participate in the company’s affairs.
 Example: Someone who inherits shares but does not engage in meetings or voting.

10. Legal Representative Members

 If a member dies or becomes insolvent, their legal heir or executor becomes a

member until the shares are formally transferred.
 Example: If a shareholder passes away, their legal representative is temporarily
registered as a member.

11. Limited and Unlimited Members

  Limited Members – Have liability limited to the unpaid amount on shares.
 Unlimited Members – In unlimited companies, members are personally liable for
the company’s debts.

12. Employee Shareholder Members

 Employees who receive shares as part of Employee Stock Ownership Plans

(ESOPs).
 They become members while continuing to work for the company.
 Example: Google, Amazon, and Microsoft offer ESOPs to employees.

13. Joint Members

 When two or more people jointly hold shares, they are called joint members.
 They share equal rights and responsibilities for the shares.
 Example: A husband and wife jointly holding shares in a company.

4. RIGHTS OF MEMBERS

Members have various rights under Indian company law, including:

Rights of Members Under Company Law

Members (or shareholders) of a company have certain rights and privileges under
Company Law. These rights can be categorized into financial rights, governance rights,
statutory rights, and inspection rights.The rights of members under company law are
primarily governed by different sections of the Companies Act (varies by country).

1. Financial Rights

These rights relate to profits, dividends, and ownership benefits.

Right to Receive Dividends (Section 123)

 Members are entitled to dividends if declared by the company.

 The company must pay dividends within 30 days of declaration.

Right to Bonus Shares (Section 63)

 Shareholders may receive bonus shares if the company issues them from reserves.

Right to Share in Assets During Liquidation (Section 319)

 If a company is wound up, members have the right to receive their share of
remaining assets after paying debts.

Right to Subscribe to Further Issue of Shares (Preemptive Rights) (Section 62)

  Existing shareholders have the first right to buy new shares before they are offered
to outsiders (Rights Issue).

Right to Transfer Shares (Section 56)

 Shareholders can sell or transfer their shares freely, subject to the company’s
Articles of Association.
 Private companies may have restrictions on share transfers.

3. Governance Rights (Voting & Decision Making)

Right to Vote in General Meetings (Section 47)

 Equity shareholders have voting rights in proportion to their shares.

 Preference shareholders can vote only on special matters.

Right to Attend General Meetings (Section 101)

 Shareholders have the right to receive notice of Annual General Meetings (AGM) or
Extraordinary General Meetings (EGM).

Right to Elect & Remove Directors (Section 152 & 169)

 Shareholders elect directors by voting in AGMs.

 Members holding at least 1% shares or 100 members can propose a director’s
removal.

Right to Approve Major Decisions (Section 180)

 Members must approve key business decisions, such as:

o Sale of company assets
o Loans & borrowings beyond limits
o Mergers & acquisitions

Right to Call an Extraordinary General Meeting (EGM) (Section 100)

 Members holding at least 10% of voting power can demand an EGM to discuss
important matters.

Right to Pass Resolutions (Section 114)

 Members can pass ordinary resolutions (51% votes) or special resolutions (75%
votes).
 Special resolutions are needed for changing company name, altering MoA/AoA,
mergers, etc.

3. Statutory Rights (Legal Protections & Minority Rights)

Right Against Oppression & Mismanagement (Section 241-242)

  Minority shareholders can approach the National Company Law Tribunal (NCLT)
if:
o Directors misuse power.
o Majority shareholders oppress minority members.

Right to Fair Treatment in Takeovers (Section 230-232)

 In mergers, acquisitions, or buyouts, members must get a fair price for their shares.

Right to Sue for Wrongful Acts (Section 245)

 Shareholders can file a class action lawsuit if company officers act against
shareholders’ interests.

Right to Compensation for Fraudulent Conduct (Section 339)

 If a company is wound up due to fraud, members can claim compensation from

responsible persons.

4. Inspection & Information Rights

Right to Inspect Company Records (Section 94)

 Members can inspect:

o Register of Members
o Minutes of Meetings
o Financial Statements

Right to Receive Financial Statements (Section 136)

 Shareholders must receive audited financial statements before the Annual General
Meeting (AGM).

Right to Receive Notices & Reports (Section 101 & 129)

 Members must be informed about:

o The date & agenda of general meetings.
o Annual reports & financial results.

Right to Obtain Copies of Memorandum & Articles of Association (Section 17)

 Members can demand a copy of the MoA & AoA, which define the company’s rules.

5. Special Rights (For Specific Members)

Right to Appoint Nominees (Section 72)

 Members can appoint a nominee to inherit their shares after their death.

Right of Buyback of Shares (Section 68)

  If the company offers a buyback, shareholders can sell their shares back to the
company.

Right of Minority Shareholders in Oppression Cases (Section 244)

 Minority shareholders (holding at least 10% shares) can approach NCLT for
protection against unfair practices.

Right to Exit the Company (For Dissenting Shareholders) (Section 235)

 If shareholders disagree with mergers or restructuring, they have the right to sell
their shares and exit.

4. LIABILITIES OF MEMBERS

The liabilities of members (shareholders) under Company Law depend on the type of
company, the nature of their shares, and their involvement in company activities. The
Companies Act, 2013 (India) defines different liabilities, which are explained below along
with relevant sections.

1. Liability Based on the Type of Company

In a Company Limited by Shares (Section 2(22))

 Members’ liability is limited to the unpaid amount on their shares.

 If shares are fully paid-up, members have no further financial liability.

In a Company Limited by Guarantee (Section 2(21))

 Members’ liability is limited to the amount they agreed to contribute in case the
company is wound up.

In an Unlimited Company (Section 2(92))

 Members have unlimited personal liability for company debts.

 If the company cannot pay its debts, members must personally pay from their own
assets.

2. Financial Liabilities

Liability to Pay the Unpaid Amount on Shares (Section 56)

 If a member has not fully paid for their shares, they must pay the remaining
amount when called by the company.

Liability to Contribute to Company Debts in Winding Up (Section 285 & 287)

 If a company is wound up, members must contribute based on:

o The type of company (limited/unlimited).
o Their shareholding and guarantee amount.
Liability for Calls on Shares (If Company Requires More Capital) (Section 49)

 If the company demands additional payment on partially paid shares, members must
pay within the specified period.

Liability in Case of Reduction of Capital (Section 66)

 If a company reduces its share capital illegally, shareholders may be liable for
repayment.

Liability for Fraudulent Transactions (Section 339)

 If members were involved in fraudulent activities, they can be forced to repay

company debts.

3. Legal Liabilities in Case of Wrongful Acts

Liability for Misrepresentation in Prospectus (Section 34 & 35)

 If a member signs or helps issue a false prospectus, they may be liable for investor
losses.

Liability for Unauthorized Acts (Section 39)

 If members authorize a company to issue shares beyond its authorized capital, they
may be personally liable.

Liability for Acting Against the Company’s Interests (Section 166)

 Members who cause harm to the company for personal benefit may be held liable.

Liability for Oppression & Mismanagement (Section 241-242)

 If a member misuses their majority control to harm minority shareholders, they can
be sued.

Liability for Non-Payment of Calls on Shares (Section 50)

 If a member does not pay the amount due on their shares, the company can forfeit
their shares.

4. Liabilities in Winding Up & Insolvency

Liability for Fraudulent Trading (Section 339)

 If members are involved in fraudulent transactions, they can be personally held

liable for company debts.

Liability for Company Debts (In Unlimited Companies) (Section 274)

  In unlimited companies, members must pay all outstanding debts from personal
assets.

Liability for Unlawful Distributions (Section 123 & 127)

 If members receive illegal dividends, they must repay the amount to the company.

Liability for Unpaid Calls in Liquidation (Section 426)

 If a company is wound up, members must pay any outstanding calls on shares.

Liability for Contributory in Winding Up (Section 285)

 Every member at the time of winding up is considered a contributory and must pay
their dues.

5. Special Liabilities for Specific Members

Liability of First Subscribers (Founders) (Section 10A)

 If the company is not operational within 6 months, first subscribers can be fined or
penalized.

Liability of Past Members (Section 286)

 If a person was a member within the past year, they may still be liable for some
debts if the company goes bankrupt.

Liability of Shareholders in Buyback of Shares (Section 68)

 If a shareholder sells shares back to the company during illegal buybacks, they may
be forced to return the money.

5. CESSATION OF MEMBERSHIP

Cessation of membership refers to the termination of a person's status as a member

(shareholder) in a company. Membership can end due to various reasons, such as transfer of
shares, death, insolvency, or winding up of the company.

1. Cessation by Transfer of Shares

Voluntary Transfer of Shares (Section 56)

 A member ceases to be a shareholder when they sell or transfer their shares to

another person.
 The new owner of the shares is registered as a member in the company's records.

Transmission of Shares (In Case of Death or Insolvency) (Section 56)

 If a member dies, their legal heirs or nominees become members upon registration.
  If a member becomes insolvent, their shares may be transferred to a trustee or
liquidator.

Forfeiture of Shares (Non-Payment of Calls) (Section 50 & 68)

 If a member fails to pay calls on shares, the company can forfeit the shares and
remove them from membership.

Buyback of Shares by Company (Section 68)

 If a company buys back its own shares, the shareholders who sold their shares cease
to be members.

2. Cessation Due to Death or Insolvency

Death of a Member (Section 72)

 Membership ends when a member dies, and their shares are transferred to the
nominee or legal heirs.

Insolvency or Bankruptcy of Member (Section 56)

 If a member is declared insolvent, their assets (including shares) are taken over by a
trustee or liquidator.

Mental Incapacity of Member (Section 72)

 If a member is declared mentally unfit by a court, their shares may be transferred to a

guardian or legal representative.

3. Cessation Due to Expulsion or Misconduct

Forfeiture of Shares for Non-Payment (Section 50)

 If a shareholder fails to pay share calls, the company can forfeit their shares, and
they cease to be a member.

Termination Due to Fraudulent Activities (Section 339)

 If a member is found guilty of fraudulent trading, they may be removed from the
company.

Compulsory Acquisition by Majority Shareholders (Squeeze-Out) (Section 235)

 If a company is taken over, and majority shareholders acquire at least 90% of

shares, they can force minority shareholders to sell their shares and exit the
company.

4. Cessation Due to Company Actions

Winding Up or Liquidation of Company (Section 285 & 287)

 If a company is wound up, all members automatically cease to be shareholders

once the company is dissolved.

Conversion of Company to Another Form (Section 18)

 If a company converts from a private to public company (or vice versa), some
members may be required to exit.

Revocation of Membership in a Guarantee Company (Section 2(21))

 In companies limited by guarantee, a member may resign or be removed as per the

Articles of Association.

5. Resignation or Voluntary Exit

Resignation as a Member (For Guarantee Companies or LLPs) (Section 168)

 In companies limited by guarantee, members can resign as per the company’s rules.
 In a Limited Liability Partnership (LLP), a member can resign by giving notice.

Cessation by Redemption of Preference Shares (Section 55)

 If a company redeems preference shares, the preference shareholder ceases to be a

member.

Exit Through Buyout Agreements (Section 230-232)

 During mergers, takeovers, or restructuring, members may be required to sell their

shares and exit the company.

6. Special Cases of Cessation of Membership

Cessation in Case of Partnership Firms Holding Shares

 If a partnership firm holding shares is dissolved, the membership ceases, and shares
are distributed among the partners.

Cessation in Case of Corporate Members (Companies Holding Shares)

 If a corporate member (company) is liquidated, it loses membership in any

company where it holds shares.

Cessation Due to Cancellation of Shares (Section 66)

 If a company reduces its share capital, certain shares may be cancelled, leading to
the cessation of membership.
LIC V. ESCORTS LTD. (1986) AIR 1370, SCR (2) 380

Issue: Right of shareholders to transfer shares and intervention of regulatory bodies in

corporate affairs.

Judgment : The Supreme Court of India held that shareholders have the absolute right to
transfer their shares unless restricted by law or the company's Articles of Association.The
court also ruled that companies cannot reject share transfers arbitrarily without valid reasons.

Significance:

 Strengthened the rights of shareholders to freely transfer shares, especially in public

companies.
 Limited government and regulatory interference in corporate matters unless legally
justified.

2. Dale & Carrington Investment Pvt. Ltd. v. P.K. Prathapan (2004) 122 CompCas 161
SC

Issue: Whether directors can issue additional shares to dilute a member’s stake in the
company.

Judgment:

 The Supreme Court ruled that directors cannot issue shares with the malicious intent
of diluting the voting power of existing members.
 Any such issuance without a proper business justification is considered oppression
and mismanagement under Sections 241-246 of the Companies Act, 2013.

Significance: Strengthened minority shareholder protection from unfair practices.

 Prevented misuse of share allotment to manipulate ownership control.

3. Foss v. Harbottle (1843) 67 ER 189

Issue: Whether an individual shareholder can sue for wrongs committed against the company.

Judgment:

 Established the principle of majority rule, stating that a company acts through its
members collectively.
 An individual shareholder cannot sue for company-related wrongs unless it falls under
specific exceptions (e.g., fraud, ultra vires acts, or oppression of minority
shareholders).

Significance in Indian Law:

 Forms the basis for corporate governance in India.

 Reinforces that members must act collectively in company decisions and personal
disputes cannot override corporate rules.
4. Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd. & Others (2021) 1
SCC 386

Issue: Whether the removal of Cyrus Mistry as chairman of Tata Sons was legal.

Judgment:

 The Supreme Court ruled in favor of Tata Sons, stating that the removal of a chairman
is a business decision and does not amount to oppression or mismanagement.
 The court clarified that corporate democracy prevails, and majority shareholders (like
Tata Trusts) have the right to take such decisions.

Significance:

 Clarified the relationship between members and board decisions in large

conglomerates.
 Highlighted the power dynamics between minority and majority shareholders.

5. Bajaj Auto Ltd. v. NK Firodia (1971) 41 Comp Cas 1 SC

Issue: Whether a company can refuse to register a share transfer.

Judgment:

 The Supreme Court ruled that a company cannot refuse to register a transfer of shares
arbitrarily.
 The Board of Directors must have valid reasons based on the Articles of Association
and good faith.

Significance: Established that members' rights over their shares cannot be restricted unfairly.

 Reinforced corporate transparency and accountability.

6. Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) AIR 1535 SC

Issue: Determining what constitutes oppression of minority shareholders under company law.

Judgment:

 The Supreme Court ruled that oppression must be continuous and harmful to minority
shareholders to be legally actionable.
 One-time disputes do not qualify as oppression under Section 241 of the Companies
Act, 2013.

Significance:

 Defined "oppression and mismanagement" in Indian corporate law.

 Set the legal standard for minority shareholders seeking protection.
1. Sanjay Dutt & Ors. v. The State of Haryana & Anr. (January 2, 2025)

Issue: Determining the extent of directors' liability for acts committed by a company.

Judgment: The Supreme Court reaffirmed that directors cannot be automatically held liable
for acts committed by a company unless specific statutory provisions impose such liability or
their personal involvement is established.

Significance: This judgment clarifies the separation between a company's legal identity and
its directors, emphasizing that personal liability of directors arises only under specific
circumstances.

2. Cox & Kings Ltd. v. SAP India Pvt. Ltd. (December 6, 2023)

Issue: Application of the 'Group of Companies' doctrine in arbitration proceedings.

Judgment: The Supreme Court held that companies outside of an arbitration agreement can
be made parties to arbitration proceedings as per the Group of Companies doctrine, provided
certain conditions are met.

Significance: This ruling clarifies the circumstances under which non-signatory companies
within a group can be bound by arbitration agreements, impacting how corporate groups
manage arbitration clauses.

3. Vodafone Idea Ltd. and Others v. Union of India (February 14, 2025)

Issue: Recalculation of dues owed by telecom companies to the government.

Judgment: The Supreme Court declined telecom companies' appeals to recalculate their dues
to the government, upholding its previous stance on the calculation of adjusted gross revenue
(AGR).

Significance: This decision reinforces the Court's interpretation of AGR, impacting the
financial obligations of telecom companies and their corporate governance strategies.

4. Byju's v. Board of Control for Cricket in India (BCCI) (October 23, 2024)

Issue: Validity of a settlement agreement between Byju's and BCCI regarding a payment
dispute over sponsorship dues.

Judgment: The Supreme Court invalidated the settlement agreement, ruling that Byju's should
have processed the settlement through the company's insolvency administrator and the
National Company Law Tribunal. Significance: This ruling emphasizes the proper procedural
channels for resolving disputes involving companies under insolvency proceedings,
highlighting the roles of insolvency administrators and tribunals.

These judgments have significant implications for corporate governance, directors' liabilities,
arbitration proceedings involving corporate groups, and the financial obligations of
companies under Indian Company Law.

Certainly, here are some recent developments and unique insights related to members under
Indian Company Law:

1. Amendments Facilitating Virtual General Meetings

Recent Development: In October 2024, the Ministry of Corporate Affairs (MCA) issued a
circular allowing companies to conduct their Annual General Meetings (AGMs) and
Extraordinary General Meetings (EGMs) through Video Conferencing (VC) or Other Audio-
Visual Means (OAVM) until September 30, 2025.

Implications:

 Enhanced Accessibility: Members can participate in meetings remotely, increasing

engagement, especially for those unable to attend in person.
 Cost Efficiency: Reduces logistical expenses associated with physical meetings.
 Regulatory Compliance: Ensures companies remain compliant with statutory
requirements amid unforeseen circumstances like pandemics.

2. Landmark Judgment on Rectification of Register of Members

Case: Chalasani Udaya Shankar v. M/S Lexus Technologies Pvt. Ltd.

Judgment Date: Approximately six months ago

Overview: The Supreme Court provided significant clarification on the scope of rectification
under Section 59 of the Companies Act, 2013. The Court emphasized the necessity for
meticulous examination of evidence and clear jurisdictional boundaries to protect shareholder
rights against malpractices.

Significance:

 Shareholder Protection: Reinforces mechanisms to safeguard members' interests from

unauthorized or incorrect entries in the register of members.
 Legal Clarity: Provides a definitive interpretation of Section 59, guiding lower courts
and tribunals in similar matters.

7. SEBI's Enhanced Measures Empowering Shareholders Development: In June 2023,

the Securities and Exchange Board of India (SEBI) introduced amendments to the
Listing Obligations and Disclosure Requirements (LODR) Regulations, aiming to
empower shareholders further.

Key Changes:
  Periodic Approval for Special Rights: Mandates regular shareholder approval for any
special rights granted, preventing the perpetuation of such rights without oversight.
 Approval for Directors: Requires periodic shareholder approval for directors serving
on the board, eliminating the practice of permanent directorships.
 Oversight on Asset Transactions: Strengthens the mechanism for the sale, lease, or
disposal of a company's assets, necessitating special resolutions with majority public
shareholder approval.

Implications:

 Increased Accountability: Ensures that the board's decisions align with the interests of
the shareholders.
 Enhanced Transparency: Provides members with greater insight and control over
significant corporate actions.