Question

Answer in brief:

State any four ways of cessation membership of a company.

Answer 1

The membership of a person may be terminated in any one of the following ways:

(1) Transfer of shares: The transfer of shares is affected by registering an instrument called ‘Instrument of Transfer’ with the company. When the company approves of the transfer, the Secretary strikes off (cancels) the name of the seller (transferor) from the Register of Members and’ Thus the membership of the shareholder is terminated.

(2) Transmission of shares: Transmission of shares refers to transfer or passing of property or titles in shares by the operation of law from a member to his legal representatives. Such an automatic transfer of shares takes place in the event of death or lunacy or insolvency of a shareholder. When the transmission of shares takes place, the membership of the original shareholder is terminated.

(3) Buy-back offer by the company: Sometimes, to achieve certain objectives (for Instance reduction of share capital or number of shareholders) company repurchases or buys back its share from the market place. In that case, some members sell their shares to the company. After purchasing its own shares, the company cancels the names of the members from the register of members. This is one of the ways of termination of membership.

(4) Forfeiture of shares: When the company forfeits the ‘shares on account of non-payment of call money, the membership of the shareholder whose shares are forfeited comes to an end.

(5) Surrender of shares: Surrender of shares mean the voluntary return of shares by a shareholder to the company for cancelling them, due to his inability to pay the call dues. When the company accepts surrender of partly paid-up shares, if permitted by its Articles, the membership of the shareholder is terminated.

(6) Right of lien exercised by the company: ‘Lien’ means claim on another’s property as security. When the company sells the shares of a shareholder under some provision in the Articles of Association (e.g., to enforce a lien over the shares held by the debtor shareholder), the membership of the shareholder is terminated.

(7) Redemption of preference shares: Redemption means repayment of the nominal value of the fully-paid up shares by the company to the shareholders, after the expiry of the stipulated period. When redeemable preference shares are redeemed to the shareholder by the company as per the terms of issue, the membership of that shareholder gets automatically cancelled

(8) Rescission by member: The term ‘rescind’ means to repeal or to cancel. When the member rescinds the contract to take the shares on the ground of misrepresentation in the prospectus or on the ground of irregular allotment, his membership stands cancelled with immediate effect.

(9) Winding-up: When a company is wound up or exists no more due to the process of law, the membership of all the members’ stands terminated automatically.