The Companies Act: Membership in a Company
A company is considered a separate legal entity, although it has no physical existence and works through a human agency. The individuals who form and run a company are known as its members. The terms shareholder and member of a company can be used interchangeably, except for an unlimited company or company limited by guarantee which may not have a share capital. The laws of forming and running a company in India are governed by the Companies Act, 1956.
The Companies Act: Who Can Become a Member of a Company?
Any individual who can enter into a contract under the Indian Contract Act, 1872 may be eligible to become a member of a company. However, this is subject to the provisions under the Memorandum and the Articles of the company.
The Articles may restrict particular persons or organizations from becoming a member of a company. A person can become a member of a company provided he fulfills certain conditions:
- Minor: A minor is not qualified to become a member of a company, because a contract with a minor is not valid. However, a minor can become a member if a written agreement is signed by his legal guardian.
- Insolvent: A bankrupt person may be considered a member of a company and is entitled to vote, as long as his name is there on the register of members.
- Partnership Firm: A partnership firm may own shares in a business. The shares are allotted on the names of partners. As per Section 25 of the Companies Act, 1956, a firm is allowed to become a member of a company that is licensed under Sec. 25.
- Foreigner: A foreigner is eligible to become a member of a company. His rights as a member would be suspended if at any point of time he becomes an alien foe.
- Company: A company may become a member of any other company if granted by its Articles. However, under Sec. 77 (1), of the Companies Act, 1956, a company cannot become its own member. It is considered illegal if it buys its own shares.