Modes of Acquiring Membership

under the Companies Act, 2013

Introduction
In company law, a "member" refers to a person whose name is
entered in the Register of Members of the company and who has
agreed in writing to become a member. Membership determines
the capacity to exercise ownership rights, vote, receive dividends,
and participate in company decisions.
The Companies Act, 2013, under Section 2(55), provides a
comprehensive de nition of a member, and different modes of
acquiring membership are recognized under both statutory
provisions and judicial pronouncements.

De nition of Member under Companies Act, 2013

Section 2(55) of the Companies Act, 2013 de nes a “member”
in relation to a company as:

• The subscriber to the memorandum of the company who

shall be deemed to have agreed to become a member;
• Every other person who agrees in writing to become a
member and whose name is entered in the register of
members;
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 • Every person holding shares of the company and whose name
is entered as a bene cial owner in the records of a depository.
This de nition establishes three broad categories of members.

Modes of Acquiring Membership

There are various ways in which membership in a company can be
acquired:

1 Membership by Subscription to the Memorandum

• Section 2(55)(i) deems all subscribers to the Memorandum
of Association as members of the company from the date of
incorporation.
• No separate allotment or entry is required in the register of
members.
Example: If ve individuals subscribe to the memorandum to
incorporate a private limited company, they automatically become
its rst members.

2 Membership by Application and Allotment

• A person can apply for shares and upon allotment of those
shares and entry of their name in the register of members,
becomes a member.
• This is the most common mode in case of public offerings or
private placements.
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Legal Requirement:
• Consent to become a member
• Entry in the register of members (Section 88)
Case Law:
Balkrishan Gupta v. Swadeshi Polytex Ltd. AIR 1985 SC 520 –
Mere allotment is not enough; entry in the register is essential.

3 Membership by Transfer of Shares

• A person can become a member by acquiring shares through
transfer from an existing member.
• Requires:
◦ A valid share transfer instrument (Form SH-4)
◦ Board approval (in private companies)
◦ Name entered in the register of members
Note: Until registration, the transferee is not recognized as a
member in the eyes of law.

4 Membership by Transmission of Shares

• Occurs when shares are transferred by operation of law,
such as:
◦ Death of a shareholder
◦ Insolvency
◦ Succession
 • Legal representatives may be registered as members upon
satisfying legal formalities.
Example: Upon the death of a shareholder, their legal heir can
apply for transmission.

5 Membership by Bene cial Ownership through

Depositories
• Under Section 2(55)(iii), any person whose name appears as
a bene cial owner in the records of a depository is deemed a
member.
• In dematerialized form, shares are held through depositories
like NSDL or CDSL.
Important Case:
CDSL v. SEBI (2006) – Bene cial owners have the same rights as
shareholders in physical form.

6 Membership by Acquiescence or Estoppel (Implied

Membership)
• A person may be deemed to be a member if they act as a
member or represent themselves as one, and the company
relies on that conduct.
• Not a formal mode but recognized under common law
principles.
Example: A person accepting dividends or voting in meetings
without being registered can be treated as a member under
estoppel.
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Conditions for Valid Membership
To become a valid member of a company, the following
conditions must be met:
1. Agreement in writing to become a member
2. Entry of the name in the Register of Members
3. Capacity to contract (i.e., not a minor or legally disquali ed
person)

Distinction between Member and Shareholder

Basis Member Shareholder
Broader; includes those
Legal without shares (e.g., Limited to persons
Scope company limited by holding shares
guarantee)
Entry in Not always essential in
Essential
Register demat form
Shares May or may not hold shares Must hold shares
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Termination of Membership
A person ceases to be a member:
• By transfer or sale of shares
• On forfeiture of shares
• On death (before transmission)
• On winding up of the company
• On resignation accepted by the Board

Legal Capacity to Become a Member

Can
Person/Entity Become Remarks
Member?
Cannot contract; shares may
Minor ❌ No
be held through guardian
Can invest in shares of
Company ✅ Yes another company (not in
itself)
Partnership Firm ❌ No Not a separate legal entity
LLP ✅ Yes Recognized as a legal entity
HUF (through Karta) ✅ Yes Karta represents the HUF
Foreign Nationals ✅ Yes Subject to FDI regulations
Judicial Pronouncements
• National Insurance Co. Ltd. v. Modi Spg. & Wvg. Mills
Co. Ltd. (1988): Held that the register of members is prima
facie evidence of membership.
• LIC v. Escorts Ltd. (1986): Af rmed that legal ownership is
determined through registration of shares, not mere
acquisition.

Conclusion
The Companies Act, 2013, lays down a structured yet exible
legal regime for acquiring membership in a company. The legal
recognition of dematerialized shareholding has made bene cial
ownership through depositories a signi cant mode in today’s
capital market. However, formalities like proper registration and
legal capacity remain essential. Judicial interpretations continue to
shape the contours of company membership in India.

Bibliography
1. Companies Act, 2013 (Bare Act)
2. Avtar Singh, Company Law, Eastern Book Company
3. Relevant Case Laws from SCC Online and AIR databases
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