An organization is composed of individuals working together, sharing similar perspectives. While the leader plays a vital role in decision-making, the workforce is encouraged to voice their opinions, and these contributions are deemed valuable. Recognition in the form of promotions is bestowed upon more seasoned employees. Ultimately, a company’s triumph is intricately tied to the contributions of its workforce. It is, therefore, apt to assert that workers constitute the vital core of an organization, ensuring its smooth operation. In this blog, we shall understand Membership in a Company in greater detail.
Definition of a Company Member
A company member is an individual who formally joins a company by having their name included in the official list of registered members known as the ‘Register of Members.’ This step signifies their acceptance of the company’s norms and often involves holding shares in the company under their name.
In a limited company, individuals who own shares are referred to as members. Conversely, in an unlimited company, members are those individuals whose liability extends to claims on the company’s debts.
Distinguishing Members from Shareholders
While there are similarities, members and shareholders differ in certain aspects. Shareholders own a portion of the company, whereas members may not necessarily have ownership rights. The appointment of members in a company is governed by the Companies Act of 2013, explicitly outlining their role within the organization. Shareholders, on the other hand, are not specifically mentioned in the act.
Acquiring Membership in the Company
As per the provisions outlined in the Companies Act of 2013 for private limited company registration, individuals who express their agreement to be included in the company’s roster of members by signing the memorandum are recognized for membership in a company. In acknowledgment of their membership in a company, these members are issued a membership card as a token of proficiency.
Official Steps for Membership Acceptance
Upon agreeing for membership in a company,, certain official procedures must be followed to formalize the membership. The following two elements play a crucial role in completing the process for membership in a company:
1. Agreement for Membership Acceptance:
An essential step involves the signing of an agreement indicating the individual’s acceptance of membership. This formalises their commitment to the company.
2. Inclusion in the ‘Register of Members’:
To solidify one’s status of membership in a company, the relevant person’s name must be officially recorded in the ‘Register of Members.’ This official list signifies their role as a recognised member within the company.
Modes of Acquiring Membership in a Company
The Companies Act of 2013 outlines various methods through which membership in a company can be acquired. These modes include:
1. Subscribing to the Memorandum:
The memorandum serves as a formal agreement that delineates a member’s role and liabilities. By subscribing to the memorandum, individuals commit to becoming company members. Their acceptance is symbolised by enrolling their names in the Register of Members, and if desired, they may subsequently become shareholders by owning company shares.
2. Written Agreement:
Company management relies heavily on agreement-based decisions. For membership in a company, individuals must adhere to company rules and sign a written agreement, functioning as a memorandum to signify acceptance. This process is mirrored in shareholder acquisition, involving application and allotment, transfer of shares, estoppels, and shareholding.
Individuals apply for the company’s shares, and the notice of allotment signifies their acceptance, leading to the inclusion of their names in the list of members.
Acquiring membership can also occur through the transfer of shares, involving the acquisition of shares from existing members, resulting in the inclusion of names in the Register.
If an individual is obligated to join as a company member without a specific cause, they may be estopped from denying their membership.
3. Shareholding:
Membership is attained by having one’s name entered as the beneficial owner of shares in the company. Unlike the written agreement for membership acceptance, this method does not require formal submission.
Rights and Liabilities of Company Membership
Membership in a company involves both rights and liabilities, defining the scope of an individual’s responsibilities and authority within the organisation.
Liabilities of Membership:
Liability refers to the state of accepting responsibility for one’s role. In the context of company membership, individuals assume certain responsibilities, including:
1. Dealings within Legal Limits:
Members are obliged to engage in transactions that align with the legal framework governing the company.
2. Payment of Due Shares:
Members are required to fulfil their financial obligations by paying any due shares as stipulated by the company.
3. Adherence to Majority Decisions:
It is the responsibility of members to abide by decisions made by the majority within the organisation.
4. Contribution to Company Assets:
Members are expected to contribute to the overall assets of the company, supporting its financial well-being.
Rights of Membership:
Members are endowed with specific rights that empower them within the company structure. These rights include:
1. Access to Documents and Account Details:
Members have the right to access relevant documents and details pertaining to the company’s accounts, ensuring transparency.
2. Participation in Fundamental Corporate Decisions:
Members possess the right to participate in and contribute to fundamental decisions that impact the corporate direction of the company.
3. Attendance and Participation in General Board Meetings:
As members, individuals have the right to attend and actively participate in general board meetings, where key discussions and decisions are made.
4. Appointment of New Directors:
Members hold the authority to participate in the appointment of new directors, influencing the leadership structure of the company.
5. Profit Participation:
Members are entitled to a share in the company’s profits, reflecting their financial stake in the organisation.
6. Opposition to Mismanagement and Wrongdoings:
Members have the right to voice opposition to any instances of mismanagement or wrongdoing within the company, safeguarding the organisation’s integrity.
Removal of Company Membership
The termination of membership from a company is the official removal of an individual’s name from the ‘Register of Members.’
Ways of Removing Membership:
Mentioned are the ways of removing membership from a company:
1. Transfer of Membership:
One of the standard methods for removing a member from the company is through the transfer of membership. By transferring shares to a preferred individual, the member’s name is subsequently removed from the registered list of company members.
2. Transmission of Membership:
Slightly differing from the transfer method, the transmission of membership involves the transfer of membership to a future descendant. This process ensures the continuity of membership within the family or designated lineage.
3. Surrender of Membership:
Membership removal can also be achieved through the surrender of membership. This entails submitting partial or full shares to the company, accompanied by the board’s acceptance report. Once accepted, the individual’s name is removed from the membership register.
4. Forfeiture of Membership:
Unfortunately, members may face the forfeiture of their membership, resulting in the loss of their shares due to specific circumstances. Additionally, the membership card may be terminated if a member claims to sell their share, leading to the removal of their name from the register of members.
Final Thoughts
Membership in a company involves finding the right balance between rights and responsibilities. According to the Companies Act of 2013, individuals become legitimate members by subscribing to the memorandum, signing written agreements, or through shareholding. These rights give members the ability to actively participate in the company’s affairs, promoting transparency and influencing its strategic direction. The careful interplay of rights and liabilities establishes a framework that shapes the collaborative governance structure within the company.
