Definition of a
Member. Section 41 provides that: (1) 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 members in its register of members.
(2) Every other person who agrees in writing to become a member of a company
and whose name is entered in its register of members, shall be a member of the
company. On this basis, two pre-requisites for a person to become a member of a
company are: (i) the agreement in writing to take shares of the company; and (ii)
the registration of his name in its register of members;
Besides, a person
may also become a member of a company through the depository system. Every person holding equity
share capital of a company and whose name is entered as beneficial owner in the
records of the depository shall be deemed to be a member of the concerned
company. (vide Depository Act, 1996).
Thus, a person can agree to take shares of a company either
as the subscriber at the initial stage of its formation or in any of the
following manner: (a) by subscribing to its further or new shares; (b) on
transfer of its shares from an existing member;(c) on acquisition or purchase
of its shares (for example, take-over bid, renunciation of rights shares by an
existing member); and (d) on acquisition of its shares by devolution (for
example, transmission of shares to legal heirs of a deceased member, on
insolvency, upon merger/amalgamation through court's order); (e) on conversion
of convertible debentures or loans pursuant to the terms of issue of such
debenture or loan agreement respectively.
The fundamental difference between the subscribes who
agree to take shares at the time of formation of the company and persons who
agree to take shares later is that the former become members immediately on
incorporation of the company, that is, they automatically become members. The
latter, though having agreed to take shares, become members only after their
names are registered in the register of members of the company.
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