Question

Answer in brief:

State any four ways of acquiring membership of a company.

Answer 1

The different ways to acquire membership of a company:

(1) By subscribing to the Memorandum: The subscribers to the Memorandum of Association of a company, who are signatories to the Memorandum are its members. Minimum members 7 in case of a public company, 2 in case of a private company, and l in case of One Person Company (OPC) are required to sign the Memorandum of Association. They are the first members of the company.

(2) By an application and the allotment: This is the direct method of acquiring membership. An application for shares by an applicant in response to the invitation given by the company through its prospectus is an offer to subscribe for its shares. When the company makes an allotment of shares to him, it amounts to the acceptance of his offer. The applicant then becomes the shareholder and his name is entered in the Register of Members. He, thus, becomes a member.

(3) By holding shares in dematerialised form: When a person buys and holds shares in dematerialised form i.e. in electronic form in his name as a beneficial owner in the records of Depository, is a member of a company.

(4) By transfer of shares: After acquiring the shares by way of sale or gift, the buyer (transferee) is required to get the shares registered in his name in the Register of Members of the company. For this, an instrument of transfer signed by the buyer (transferee) and the seller (transferor) accompanied by the share certificates is to be lodged with the company. When the company approves of the transfer, the name of the transferee is entered in the Register of Members and thus, he becomes the member.

(5) By Transmission of Shares: The passing of ownership of shares from one shareholder to another by the operation of law is called the transmission of shares. In the event of the death of a member, his legal representative, in the case of insolvency, official receiver/Assignee, and in the case of insanity, administrator become the member of the company in the place of the concerned member.

(6) Nominee of One Person Company (OPC): One Person Company is a company which has only one person as a member. The nominee becomes the sole owner i.e. the member after the death or insanity or insolvency of the member.

(7) By Acquiescence: If a person’s name is improperly entered in the Register of Members and the exercises rights of membership such as attending company meetings, accepting dividends, etc. and does not take any step to remove his name from the Register of Members. In such a case, he is estopped from denying this fact so as to disown his liability as a member and is liable as a member of the company. It is also called membership by acquiescence or by the principle of estoppel.