Question

Answer the following question:

Explain the eligibility of memberships of a company.

Answer 1

The eligibility of membership in a company can be explained with particular reference to certain categories of persons as explained below:

(A) Individual:

(1) Minor: A person below the age of 18 years is called a minor. A minor cannot enter into a contract and therefore cannot be a member of the company. However, the parent or guardian can purchase and hold shares of the company on behalf of the minor.

(2) Insolvent: A person having Insufficient assets to meet debts and liabilities it is called an insolvent. Since the beneficial rights of shares are held by the official assignee or Receiver, the solvent person stops being a member of the company.

(3) Insane/Lunatic: A person who is mentally deranged or of unsound mind is called a lunatic. A lunatic cannot have the ability to enter into a contract and hence lunatic/insane person is ineligible for membership of a company.

(4) Foreigner (Non-Resident-NRI): A foreigner (NRI) can buy shares and become a member of a company but this is subject to Foreign Exchange Regulation Act, 1999 (FEMA 1999) under which the permission of the Reserve Bank of India is necessary before allotment of any shares is made to a foreigner. If at any time the foreigner becomes an alien enemy, his rights as a member of the company are suspended.

(B) Organisations:

(1) Company: A company, being an artificial person, can become a member of another company. If so authorized by its Articles or Memorandum. But a company cannot become its own member since a company cannot acquire its own shares because it amounts to a reduction of capital without the sanction of the court. Similarly, a subsidiary company cannot become a member of its holding company.

(2) Co-operative Society: A co-operative society is a registered entity or legal person, is eligible for the membership of a company.

(3) Limited Liability Partnership (LLP): As a Limited Liability Partnership (LLP) is a juristic or legal person, it is eligible for the membership of the company

(4) Hindu Undivided Family (HUF): Like a partnership firm, a Hindu undivided family cannot become a member of a company. However, the head of the Hindu undivided family, i.e. Karta can purchase shares of a company and can become a member of the company.

(5) A Partnership firm: A partnership firm cannot become I member of the I company as it has no separate legal Status district from the partners. However, it can hold the shares of a company in an individual name of partners.

(6) Trust: Trust refers to a group of commercial enterprises combined to control the market {or any commodity. A registered trust to eligible for the membership of the company.