In the case of a company, limited by shares, the persons
whose names are put on the register of members, are the members of the company.
They may also be called shareholders of the company as they have been allotted
shares and are holding them in their own right. In such a situation, the terms
'member' and 'shareholder' are interchangeably used to mean the same person. In
Srikanta Data v. venkateshwara Real
Estate Enterprises (P) Ltd. (1990) 68 Comp. Cas.216 (Kar), it was held that unless the context otherwise
requires, the word 'member' under s.2(27) means a ‘shareholder’ excepting a
person who is a bearer of a share warrant of the company. But in the case of an
unlimited company or a company limited by guarantee, a member may not be a
shareholder, for such a company may not have a share capital. However,
sometimes a distinction is maintained between a member and a shareholder in the
case of a company having a share capital. In other words, as regard the same
set of shares one may be a members and another be the shareholder of the
company. This distinction arises in
the following situations:
(1) X is a member of a company limited by shares. His name is placed on the register of members as he is holding shares in his own right and, therefore whether we call him a member or a shareholder, it is immaterial. In such a situation, the terms 'member' and. 'shareholder' may be used interchangeably. Now, in the following three situation he will cease to be a shareholder, though he continues to be the member of the company:
(a) On sale. X sells the shares to Y. He fills in a share transfer form
and hands it over to Y. He also gives the share certificate representing
the shares to y. In return for sale of
shares, he receives consideration from Y. X is no longer a shareholder as he has sold the shares and
property in the shares has passed to Y.
But the name of X continues to be on the Register of members till the transfer of shares is registered by
the company in favour of Y.
(b) On death. X dies and his property, including shares, is inherited by Y, his legal representative. X is no longer the shareholder. He is not in existence to hold the shares. Y is holding the shares in his own right and, therefore, can rightly be called the shareholder. But X continues to be the member as his name still appears on the register of members. However, as soon as Y gets his own name registered in the register of members, then X will cease to be a member.
(b) On death. X dies and his property, including shares, is inherited by Y, his legal representative. X is no longer the shareholder. He is not in existence to hold the shares. Y is holding the shares in his own right and, therefore, can rightly be called the shareholder. But X continues to be the member as his name still appears on the register of members. However, as soon as Y gets his own name registered in the register of members, then X will cease to be a member.
(c) On
becoming insolvent. X becomes insolvent and his property, including shares, vest in the official Receiver
or Official Assignee. The Official Receiver
or Assignee is holding the shares in his own right. Therefore, X is no longer
the shareholder, though he continues to be the member of the company.
(2) A
person who is holding a share warrant is a shareholder but he is not a
member of the company as his name is struck off the register
of members (s.115).
(3) A
person who subscribes to the memorandum of association immediately becomes the
member, even though no shares are allotted to him. Till shares are allotted to
the subscriber, he is a member but not the shareholder of the company.
(4) In the
case of a company limited by guarantee having no share capital or an unlimited
company having no share capital, there will be only ‘members’ but not
'shareholders'.
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