Company Law: Membership

Topics: Law, Common law, Shareholder Pages: 27 (8455 words) Published: February 13, 2011
Membership and Control

There are several ways in which membership of a company may be acquired:

These are as follows:

i) By subscribing the Memorandum. When the company is registered, the persons who subscribed the memorandum automatically become members, and must be put on the Register of Members, though they are deemed to be members without such an entry and even without allotment.

ii) In the case of a director of a public company, by delivering a written undertaking to the Registrar to take and pay for his qualification shares. He becomes a member when the undertaking is delivered and is then in the same position as regards membership as a subscriber. (Sect. 181(2)

iii) By making an application under a prospectus or offer for sale for an allotment of shares.

iv) By taking a transfer from an existing member.

v) By succeeding to shares on the death or bankruptcy of a member.

The persons mentioned in (iii), (iv) and (v) above do not actually become members until their names are entered in the Register of Members. (Sect.26 (2).


The question of capacity is governed by the general law of contract, and anyone who has the capacity to make a contract may become a member of a company. Certain special cases must be considered


A minor may be a member of a company unless the articles otherwise provide. Registration of a minor may give rise to difficulties in the case of partly-paid shares, because a minor can repudiate the contract with the company at any time during minority and for a reasonable time thereafter. If he does repudiate, he cannot recover the money he has paid up to the time of repudiation if the shares have ever had any value. (Steinberg v. Scala (Leeds) The Family Law Reform Act, 1969, Sect. 1 reduced the age of majority from 21 to 18 years, There is a general provision in the Act that a person attains a particular age, i.e. not only the age of majority, at the first moment of the relevant birthday. The common law rule that the age is attained at the first moment of the day preceding the birthday is repealed.

A company always has power to refuse to accept a minor as a transferee or shareholder where it knows his age and can set aside a transfer to a minor once it learns the position. However, such a right will disappear if the company knows his age and retains him in the resister.


A company may, if authorized by its memorandum, become a member of another company. It may attend meetings and vote by means of a representative (appointed by the board) (Sect. 13 9(1)) or by proxy. However, a company cannot be a member of itself, it cannot purchase its own shares or be entered on its own Register of Members, because such a purchase would amount to a return of capital to the shareholders from whom the shares were bought, and would, therefore, operate as a reduction of capital without the consent of the court. (Trevor v. Whitworth, 1887.)”

The ruling given in Trevor v. Whitworth” could be avoided by the device of a loan by the company to a person to enable that person to buy or subscribe for shares in the company.

There is a provision to Sect. 54 which sets out certain exceptional eases in which the company can lend money which may be used to purchase shares in the company or its holding company. These are as follows:-

(a) Where the ordinary business of the company is to lend money, as in the case of a banking business. A mere power in the memorandum to lend money is not enough. (Steen v. Law, 1963.)

(b) Where the money is to be lent to trustees so that they may purchase fully-paid shares in the company to hold in trust for the benefit of employees, including any director holding a salaried employment or office in the company.

(c) Where loans are made to employees who are not directors so that they may purchase fully-paid shares in the company

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