3.1 Acquisition of membership

Ways of Becoming a Member

There are various ways of becoming a member of a company as discussed below;

1) By allotment

Normally a person would become a member of the company by applying for the shares and being allotted them directly by the company.

2) By subscribing to the memorandum

The Act provides that “the subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company and on its registration, shall be entered as a member in its register of members”.

3) Agreement to become a member and entry on the Register

In cases of membership other than subscription to the memorandum, two essential conditions must be satisfied:

(a) An agreement to become a member and

(b) Entry on the register.

4) By agreeing to take qualification shares

All persons who have signed an undertaking for their qualification shares, for acting as a director of the company and delivered to the registrar of companies are also in the same position as subscribers to the memorandum. As such, they are also deemed to have become members automatically on the registration of the company.

5) By transfer

A person also gets registered as a member if he buys the shares in the open market. This is possible in the case of a contract of sale or other transaction. There is no difference between a contract to take shares and any other contract. A formal contract is not necessary.

6) By transmission

A person may become a shareholder by transmission of shares through death, lunacy or insolvency of a member. Transmission is different from transfer in that it is an involuntary transfer. It takes place by operation of law to a person who is entitled under the law to succeed to the shares of the deceased or lunatic automatically and does not require an instrument of transfer. Here, the company is not entitled without his consent to place the name of the person who may become the shareholder in consequence or by reason of the death or bankruptcy of member or any other event constituting transmission on the register of members.

7) By estoppels

If a person’s name is improperly placed on the register and he knows and assents to it, attends company meetings, accepts a dividend, he shall be deemed to be a member. Under this principle if a person holds himself out as being in a position of membership, which is not true, he will be estopped from denying that he is a member.