the register of members cannot deprive him of his status.

He acquires, as soon as the

company is registered, the full status of a member with all the rights and liabilities.

[Qualification shares [s. 266].-This has been dropped by 2013 Act]

2. By allotment-A person may become a shareholder by agreeing in writing to take

shares in the company by allotment. This has been dealt with in the preceding chapter.

3. By transfer.-One may purchase shares of a company in the open market and then
apply to the company to register him as a member. Section 2(55) which defines
member says that it includes the subscribers to the memorandum of a company and
every other person who agrees in writing to become a member of the company and
whose name is entered in its register of members. Thus it requires two things: (a) an
agreement in writing to become a member and (b) an entry in the register.8

4. By transmission [s. 56].--On the death of a member his executor or the person who
is entitled under the law to succeed to his estate gets the right to have the shares
transmitted to his name in the company's register of members. Transmission is
different from transfer. Section 56(2) which lays down the formalities of transfer
specially provides that nothing in the section shall prejudice the power of the company
to register as shareholder any person to whom the right to any shares has been
transmitted by operation of law.9 It follows that an instrument of transfer is not
necessary. No formalities like transfer deed, execution, attestation and stamp duty are
needed. Legal heirs as shown by the succession certificate are aggrieved persons
entitled to seek relief against refusal.

Nomination of shares and debentures [S. 72]

This section provides the facility to shareholders, etc, to register the

frame of any person with the company in whom the shares will be vested on the death
of the nominating shareholder. Debenture holders and depositors have also been
given similar rights. Nomination can be filed at any time in a manner to be prescribed.
Joint holders can also nominate any person for the purpose of vesting of shares in the
event of the death of all the joint holders. Such nomination will supersede the law of
succession and any will or dis position whether testamentary or otherwise. The
shares or debentures will be vested in the nominee to the exclusion of any claimant
whether under will or succession. The only process by which any change can be
brought about is that the security holder should himself change the nomination. Where
the nominee is a minor, the security holder may suggest any other name in the
prescribed manner in whom the shares would be vested should the nominee die
during his minority.

"11-, _ 4-:m1 L-..1_L ,JAALL -[L1-__AI 1 1

EMBERS MEANS THE persons whose name are entered into the register of members. In
other words the persons who agree in mi ting to become members of the company are
called members. Similarly, shareholders are the persons who, holds certain shares of
the company. The terms members and shareholders are synonyms and used
interchangeably.
Conditions to become member: The following conditions must be satisfied to become a
member in a company. They are;

l. The person must agree to become member 2 The name of such person must be
entered in the register

In N Sat) aprasad Rao v. VLN Sastry AP it was held that a person may be regarded as a
member if he has acquired the right of membership though his name is not in the
register.

Distinction between member and shareholder:

l . A registered shareholder is a member, but a registered mem

ber may not be a shareholder because-the company may not have a share capital.

2. The bearer of a share warrant is only a shareholder and not

a member of the company as his name is struck off from the register of members

3 A legal representative of a deceased member 1s not a mem~ ber until he applies for
registration.

Who can be a member? Any person who 1s competent to contract as per Section 11 of
the Indian Contract Act, 1872 may become a member of a company. However, grant of
membership is subject to the memorandum and articles of the company. e.
g.,Company, for~ eigner, corporation, married woman, trade union. However, the ar

ticles may prohibit certain persons to become members.

who cannot be a member? Minor is not eligible to become a member. However, a

minor may be allotted fully paid shares and during minority the minor has no liability.
Similarly an insolvent is not eligi ble to become a member. Partnership firm is not
eligible to become a member. Similarly a receiver is not eligible to become a member.
Similarly, a joint-shareholders are not eligible to become a member.

Register of members: Section 150: Every company must keep register of member.
Register must contain the following particulars.

1. The names, addreses and occupation of each member 2 The sharesheld by each
member

3. The amount paid or agreed to be paid on those shares 4The date of entry in the
register as a member

Index of members: Section 151. Every company having more than 50 members shall
keep an index of the names of the members along with the register. Any alteration in
the register of members shall be noted in the index within 14 days of the alteration.
The index shall, at all times, be kept at the same place in the register of members. The
company and every officer of company who fails to keep the above index, shall be
punishable with a fine up to Rs 500/-.

1. By subscribing to memorandum: Section 41: A person may acquire membership in a

company by subscribing to the menu it an dum. In Liquidator v. Sulcmrm Bhai it was
held that the subscriber becomes a imember immediately after the registration ofthe
company.

2. By taking qualification shares: Section 266: /\ person may acquire membership in a

company by taking qualifications shares. He shall be deemed to be a member on the
registration of company. In ZamirAhmed v. DR Banaji AIR 1958 Bom 198 it was held
that a director who fails to take his qualification shares could not be treated as a
member.

3. By allotment of shares: Aperson may acquire membership in a company by

allotment of shares. In M ussel white v. CH Musselwhite & Sons (1962) 1 All ER 201 it
was held that a mere allotment of share cannot make a person to become a member
until his name is entered in the register of members.

4. By transfer of shares: Section 108: A person may acquire membership in a company

by transfer of shares. According to , the shares are transferable. In Lalithamba Bai v.
Harrisons Malayalam Ltd(1988) 63 Comp Cas 622 it was held that an entry in the
register of members is a mandatory condition to become a member in the company.

5. By transmission of shares: Aperson may acquire membership in a company by

transmission of shares. In Kamlabai v. Vithal Pd C0 (P) Ltd (1993) 77 Comp Cas 231 Kar
it was held that the aggrieved persons were entitled to relief because the succession
certificate was sufficient proof to decide the legal heirs.

6. By acquiescence or estoppel: Aperson may acquire membership in a company by

acquiescence or estoppel. Sometimes a person may not object whose name~ isentered
in the register by mistake or inadvertence of the company. In Re New Zealand Banking

l. Lifting the corporate veil

The chief advantage of incorporation from which all others follow is the separate legal
entity of the company. In reality, however, the business of the legal person is always
carried on by, and for the benefit of, some individeals. In the ultimate analysis, some
human beings are the real beneficiaries of the corporate advantages, for while, by
fiction of law, a corporation is a distinct entity, yet in reality it is an association of
persons who are in fact the beneficial owners of all the corporate property And what
the Salomon case decides is that in questions of property and capacity, of acts done
and rights acquired or, liabilities assumed thereby the personalities of the natural
persons who are the companys corporators is to be ignored

This theory of corporate entity is indeed the basic principle on which the whole law of
corporations is based. Instances are not few in which the courts have successfully
resisted the temptation to break through the corporate veil. A landladys bid toj regain
tenanted premises for self-business could not succeed as the business was in the name
of her company?8 The Supreme Court did not allow a shareholder to sue for the
violation of the fundamental rights of his company.59 Where a company acquires a
majority of the shares and also the assets of another company, that does not
extinguish the debt of one to the other.60 The shareholders and creditors of a
dissolved company cannot maintain an action for the recovery of its leftover assets. A
managing director cannot be compelled in his personal capacity to produce books of
which he has custody in official capacity.
the register of members cannot deprive him of his status. He acquires, as soon as the
company is registered, the full status of a member with all the rights and liabilities.

[Qualification shares [s. 266].-This has been dropped by 2013 Act]

2. By allotment-A person may become a shareholder by agreeing in writing to take

shares in the company by allotment. This has been dealt with in the preceding chapter.

3. By transfer.-One may purchase shares of a company in the open market and then
apply to the company to register him as a member. Section 2(55) which defines
member says that it includes the subscribers to the memorandum of a company and
every other person who agrees in writing to become a member of the company and
whose name is entered in its register of members. Thus it requires two things: (a) an
agreement in writing to become a member and (b) an entry in the register.8

4. By transmission [s. 56].--On the death of a member his executor or the person who
is entitled under the law to succeed to his estate gets the right to have the shares
transmitted to his name in the company's register of members. Transmission is
different from transfer. Section 56(2) which lays down the formalities of transfer
specially provides that nothing in the section shall prejudice the power of the company
to register as shareholder any person to whom the right to any shares has been
transmitted by operation of law.9 It follows that an instrument of transfer is not
necessary. No formalities like transfer deed, execution, attestation and stamp duty are
needed. Legal heirs as shown by the succession certificate are aggrieved persons
entitled to seek relief against refusal.

Nomination of shares and debentures [S. 72]

This section provides the facility to shareholders, etc, to register the

frame of any person with the company in whom the shares will be vested on the death
of the nominating shareholder. Debenture holders and depositors have also been
given similar rights. Nomination can be filed at any time in a manner to be prescribed.
Joint holders can also nominate any person for the purpose of vesting of shares in the
event of the death of all the joint holders. Such nomination will supersede the law of
succession and any will or dis position whether testamentary or otherwise. The
shares or debentures will be vested in the nominee to the exclusion of any claimant
whether under will or succession. The only process by which any change can be
brought about is that the security holder should himself change the nomination. Where
the nominee is a minor, the security holder may suggest any other name in the
prescribed manner in whom the shares would be vested should the nominee die
during his minority.

"11-, _ 4-:m1 L-..1_L ,JAALL -[L1-__AI 1 1

EMBERS MEANS THE persons whose name are entered into the register of members. In
other words the persons who agree in mi ting to become members of the company are
called members. Similarly, shareholders are the persons who, holds certain shares of
the company. The terms members and shareholders are synonyms and used
interchangeably.

Conditions to become member: The following conditions must be satisfied to become a

member in a company. They are;

l. The person must agree to become member 2 The name of such person must be
entered in the register

In N Sat) aprasad Rao v. VLN Sastry AP it was held that a person may be regarded as a
member if he has acquired the right of membership though his name is not in the
register.

Distinction between member and shareholder:

l . A registered shareholder is a member, but a registered mem

ber may not be a shareholder because-the company may not have a share capital.

2. The bearer of a share warrant is only a shareholder and not

a member of the company as his name is struck off from the register of members

3 A legal representative of a deceased member 1s not a mem~ ber until he applies for
registration.

Who can be a member? Any person who 1s competent to contract as per Section 11 of
the Indian Contract Act, 1872 may become a member of a company. However, grant of
membership is subject to the memorandum and articles of the company. e.
g.,Company, for~ eigner, corporation, married woman, trade union. However, the ar

ticles may prohibit certain persons to become members.

who cannot be a member? Minor is not eligible to become a member. However, a

minor may be allotted fully paid shares and during minority the minor has no liability.
Similarly an insolvent is not eligi ble to become a member. Partnership firm is not
eligible to become a member. Similarly a receiver is not eligible to become a member.
Similarly, a joint-shareholders are not eligible to become a member.

Register of members: Section 150: Every company must keep register of member.
Register must contain the following particulars.

1. The names, addreses and occupation of each member 2 The sharesheld by each
member
3. The amount paid or agreed to be paid on those shares 4The date of entry in the
register as a member

Index of members: Section 151. Every company having more than 50 members shall
keep an index of the names of the members along with the register. Any alteration in
the register of members shall be noted in the index within 14 days of the alteration.
The index shall, at all times, be kept at the same place in the register of members. The
company and every officer of company who fails to keep the above index, shall be
punishable with a fine up to Rs 500/-.

1. By subscribing to memorandum: Section 41: A person may acquire membership in a

company by subscribing to the menu it an dum. In Liquidator v. Sulcmrm Bhai it was
held that the subscriber becomes a imember immediately after the registration ofthe
company.

2. By taking qualification shares: Section 266: /\ person may acquire membership in a

company by taking qualifications shares. He shall be deemed to be a member on the
registration of company. In ZamirAhmed v. DR Banaji AIR 1958 Bom 198 it was held
that a director who fails to take his qualification shares could not be treated as a
member.

3. By allotment of shares: Aperson may acquire membership in a company by

allotment of shares. In M ussel white v. CH Musselwhite & Sons (1962) 1 All ER 201 it
was held that a mere allotment of share cannot make a person to become a member
until his name is entered in the register of members.

4. By transfer of shares: Section 108: A person may acquire membership in a company

by transfer of shares. According to , the shares are transferable. In Lalithamba Bai v.
Harrisons Malayalam Ltd(1988) 63 Comp Cas 622 it was held that an entry in the
register of members is a mandatory condition to become a member in the company.

5. By transmission of shares: Aperson may acquire membership in a company by

transmission of shares. In Kamlabai v. Vithal Pd C0 (P) Ltd (1993) 77 Comp Cas 231 Kar
it was held that the aggrieved persons were entitled to relief because the succession
certificate was sufficient proof to decide the legal heirs.

6. By acquiescence or estoppel: Aperson may acquire membership in a company by

acquiescence or estoppel. Sometimes a person may not object whose name~ isentered
in the register by mistake or inadvertence of the company. In Re New Zealand Banking

l. Lifting the corporate veil

The chief advantage of incorporation from which all others follow is the separate legal
entity of the company. In reality, however, the business of the legal person is always
carried on by, and for the benefit of, some individeals. In the ultimate analysis, some
human beings are the real beneficiaries of the corporate advantages, for while, by
fiction of law, a corporation is a distinct entity, yet in reality it is an association of
persons who are in fact the beneficial owners of all the corporate property And what
the Salomon case decides is that in questions of property and capacity, of acts done
and rights acquired or, liabilities assumed thereby the personalities of the natural
persons who are the companys corporators is to be ignored

This theory of corporate entity is indeed the basic principle on which the whole law of
corporations is based. Instances are not few in which the courts have successfully
resisted the temptation to break through the corporate veil. A landladys bid toj regain
tenanted premises for self-business could not succeed as the business was in the name
of her company?8 The Supreme Court did not allow a shareholder to sue for the
violation of the fundamental rights of his company.59 Where a company acquires a
majority of the shares and also the assets of another company, that does not
extinguish the debt of one to the other.60 The shareholders and creditors of a
dissolved company cannot maintain an action for the recovery of its leftover assets. A
managing director cannot be compelled in his personal capacity to produce books of
which he has custody in official capacity.62 In Lee v Lees

(a) Determination of character.-Occasionally it becomes necessary to determine the

character of a company, for example, to see whether it is enemy. In such a case, the
courts may in their discretion examine the

character of persons in real control of the corporate affairs. Daimler Co Ltd V

Continental Tyre 8 Rubber Co Ltd72 is illustrative:

A company was incorporated in England for the purpose of selling tyres manufactured
in Germany by a German company. The German company held the bulk of the shares
in the English company. The holders of the remaining shares (except one) and all the
directors were Germans, resident in Germany. Thus the real control of the English
company was in German hands. During the World War I the English company
commenced an action to recover a trade debt. And the question was whether the
company had become an enemy company and should, therefore, be barred from
maintaining the action.
the register of members cannot deprive him of his status. He acquires, as soon as the
company is registered, the full status of a member with all the rights and liabilities.

[Qualification shares [s. 266].-This has been dropped by 2013 Act]

2. By allotment-A person may become a shareholder by agreeing in writing to take

shares in the company by allotment. This has been dealt with in the preceding chapter.

3. By transfer.-One may purchase shares of a company in the open market and then
apply to the company to register him as a member. Section 2(55) which defines
member says that it includes the subscribers to the memorandum of a company and
every other person who agrees in writing to become a member of the company and
whose name is entered in its register of members. Thus it requires two things: (a) an
agreement in writing to become a member and (b) an entry in the register.8

4. By transmission [s. 56].--On the death of a member his executor or the person who
is entitled under the law to succeed to his estate gets the right to have the shares
transmitted to his name in the company's register of members. Transmission is
different from transfer. Section 56(2) which lays down the formalities of transfer
specially provides that nothing in the section shall prejudice the power of the company
to register as shareholder any person to whom the right to any shares has been
transmitted by operation of law.9 It follows that an instrument of transfer is not
necessary. No formalities like transfer deed, execution, attestation and stamp duty are
needed. Legal heirs as shown by the succession certificate are aggrieved persons
entitled to seek relief against refusal.

Nomination of shares and debentures [S. 72]

This section provides the facility to shareholders, etc, to register the

frame of any person with the company in whom the shares will be vested on the death
of the nominating shareholder. Debenture holders and depositors have also been
given similar rights. Nomination can be filed at any time in a manner to be prescribed.
Joint holders can also nominate any person for the purpose of vesting of shares in the
event of the death of all the joint holders. Such nomination will supersede the law of
succession and any will or dis position whether testamentary or otherwise. The
shares or debentures will be vested in the nominee to the exclusion of any claimant
whether under will or succession. The only process by which any change can be
brought about is that the security holder should himself change the nomination. Where
the nominee is a minor, the security holder may suggest any other name in the
prescribed manner in whom the shares would be vested should the nominee die
during his minority.

"11-, _ 4-:m1 L-..1_L ,JAALL -[L1-__AI 1 1

EMBERS MEANS THE persons whose name are entered into the register of members. In
other words the persons who agree in mi ting to become members of the company are
called members. Similarly, shareholders are the persons who, holds certain shares of
the company. The terms members and shareholders are synonyms and used
interchangeably.

Conditions to become member: The following conditions must be satisfied to become a

member in a company. They are;

l. The person must agree to become member 2 The name of such person must be
entered in the register

In N Sat) aprasad Rao v. VLN Sastry AP it was held that a person may be regarded as a
member if he has acquired the right of membership though his name is not in the
register.

Distinction between member and shareholder:

l . A registered shareholder is a member, but a registered mem

ber may not be a shareholder because-the company may not have a share capital.

2. The bearer of a share warrant is only a shareholder and not

a member of the company as his name is struck off from the register of members
3 A legal representative of a deceased member 1s not a mem~ ber until he applies for
registration.

Who can be a member? Any person who 1s competent to contract as per Section 11 of
the Indian Contract Act, 1872 may become a member of a company. However, grant of
membership is subject to the memorandum and articles of the company. e.
g.,Company, for~ eigner, corporation, married woman, trade union. However, the ar

ticles may prohibit certain persons to become members.

who cannot be a member? Minor is not eligible to become a member. However, a

minor may be allotted fully paid shares and during minority the minor has no liability.
Similarly an insolvent is not eligi ble to become a member. Partnership firm is not
eligible to become a member. Similarly a receiver is not eligible to become a member.
Similarly, a joint-shareholders are not eligible to become a member.

Register of members: Section 150: Every company must keep register of member.
Register must contain the following particulars.

1. The names, addreses and occupation of each member 2 The sharesheld by each
member

3. The amount paid or agreed to be paid on those shares 4The date of entry in the
register as a member

Index of members: Section 151. Every company having more than 50 members shall
keep an index of the names of the members along with the register. Any alteration in
the register of members shall be noted in the index within 14 days of the alteration.
The index shall, at all times, be kept at the same place in the register of members. The
company and every officer of company who fails to keep the above index, shall be
punishable with a fine up to Rs 500/-.

1. By subscribing to memorandum: Section 41: A person may acquire membership in a

company by subscribing to the menu it an dum. In Liquidator v. Sulcmrm Bhai it was
held that the subscriber becomes a imember immediately after the registration ofthe
company.

2. By taking qualification shares: Section 266: /\ person may acquire membership in a

company by taking qualifications shares. He shall be deemed to be a member on the
registration of company. In ZamirAhmed v. DR Banaji AIR 1958 Bom 198 it was held
that a director who fails to take his qualification shares could not be treated as a
member.

3. By allotment of shares: Aperson may acquire membership in a company by

allotment of shares. In M ussel white v. CH Musselwhite & Sons (1962) 1 All ER 201 it
was held that a mere allotment of share cannot make a person to become a member
until his name is entered in the register of members.
4. By transfer of shares: Section 108: A person may acquire membership in a company
by transfer of shares. According to , the shares are transferable. In Lalithamba Bai v.
Harrisons Malayalam Ltd(1988) 63 Comp Cas 622 it was held that an entry in the
register of members is a mandatory condition to become a member in the company.

5. By transmission of shares: Aperson may acquire membership in a company by

transmission of shares. In Kamlabai v. Vithal Pd C0 (P) Ltd (1993) 77 Comp Cas 231 Kar
it was held that the aggrieved persons were entitled to relief because the succession
certificate was sufficient proof to decide the legal heirs.

6. By acquiescence or estoppel: Aperson may acquire membership in a company by

acquiescence or estoppel. Sometimes a person may not object whose name~ isentered
in the register by mistake or inadvertence of the company. In Re New Zealand Banking

l. Lifting the corporate veil

The chief advantage of incorporation from which all others follow is the separate legal
entity of the company. In reality, however, the business of the legal person is always
carried on by, and for the benefit of, some individeals. In the ultimate analysis, some
human beings are the real beneficiaries of the corporate advantages, for while, by
fiction of law, a corporation is a distinct entity, yet in reality it is an association of
persons who are in fact the beneficial owners of all the corporate property And what
the Salomon case decides is that in questions of property and capacity, of acts done
and rights acquired or, liabilities assumed thereby the personalities of the natural
persons who are the companys corporators is to be ignored

This theory of corporate entity is indeed the basic principle on which the whole law of
corporations is based. Instances are not few in which the courts have successfully
resisted the temptation to break through the corporate veil. A landladys bid toj regain
tenanted premises for self-business could not succeed as the business was in the name
of her company?8 The Supreme Court did not allow a shareholder to sue for the
violation of the fundamental rights of his company.59 Where a company acquires a
majority of the shares and also the assets of another company, that does not
extinguish the debt of one to the other.60 The shareholders and creditors of a
dissolved company cannot maintain an action for the recovery of its leftover assets. A
managing director cannot be compelled in his personal capacity to produce books of
which he has custody in official capacity.62 In Lee v Lees

(a) Determination of character.-Occasionally it becomes necessary to determine the

character of a company, for example, to see whether it is enemy. In such a case, the
courts may in their discretion examine the

character of persons in real control of the corporate affairs. Daimler Co Ltd V

Continental Tyre 8 Rubber Co Ltd72 is illustrative:

A company was incorporated in England for the purpose of selling tyres manufactured
in Germany by a German company. The German company held the bulk of the shares
in the English company. The holders of the remaining shares (except one) and all the
directors were Germans, resident in Germany. Thus the real control of the English
company was in German hands. During the World War I the English company
commenced an action to recover a trade debt. And the question was whether

the company had become an enemy company and should, therefore, be barred from
maintaining the action.

for benefit of revenue-The court has the power to disregard corporate entity if it is
used for tax evasion or to circumvent tax obligation. A clear illustration is Dinshaw
Maneckjee Petit, re:78

The assessee was a wealthy man enjoying huge dividend and interest income. He
formed four private companies and agreed with each to hold a block of investment as
an agent for it. Income received was credited in the accounts of the company but the
company handed back the amount to him as a pretended loan. This way he divided his
income into four parts in a bid to reduce his tax liability.

But it was held that the company was formed by the assessee purely and simply as a
means of avoiding super-tax and the company was nothing more than the assessee
himself. It did no business, but was created simply as a legal entity to ostensibly
receive the dividends and interests and to hand them over to the assessee as
pretended loans.
the register of members cannot deprive him of his status. He acquires, as soon as the
company is registered, the full status of a member with all the rights and liabilities.

[Qualification shares [s. 266].-This has been dropped by 2013 Act]

2. By allotment-A person may become a shareholder by agreeing in writing to take

shares in the company by allotment. This has been dealt with in the preceding chapter.

3. By transfer.-One may purchase shares of a company in the open market and then
apply to the company to register him as a member. Section 2(55) which defines
member says that it includes the subscribers to the memorandum of a company and
every other person who agrees in writing to become a member of the company and
whose name is entered in its register of members. Thus it requires two things: (a) an
agreement in writing to become a member and (b) an entry in the register.8

4. By transmission [s. 56].--On the death of a member his executor or the person who
is entitled under the law to succeed to his estate gets the right to have the shares
transmitted to his name in the company's register of members. Transmission is
different from transfer. Section 56(2) which lays down the formalities of transfer
specially provides that nothing in the section shall prejudice the power of the company
to register as shareholder any person to whom the right to any shares has been
transmitted by operation of law.9 It follows that an instrument of transfer is not
necessary. No formalities like transfer deed, execution, attestation and stamp duty are
needed. Legal heirs as shown by the succession certificate are aggrieved persons
entitled to seek relief against refusal.

Nomination of shares and debentures [S. 72]

This section provides the facility to shareholders, etc, to register the

frame of any person with the company in whom the shares will be vested on the death
of the nominating shareholder. Debenture holders and depositors have also been
given similar rights. Nomination can be filed at any time in a manner to be prescribed.
Joint holders can also nominate any person for the purpose of vesting of shares in the
event of the death of all the joint holders. Such nomination will supersede the law of
succession and any will or dis position whether testamentary or otherwise. The
shares or debentures will be vested in the nominee to the exclusion of any claimant
whether under will or succession. The only process by which any change can be
brought about is that the security holder should himself change the nomination. Where
the nominee is a minor, the security holder may suggest any other name in the
prescribed manner in whom the shares would be vested should the nominee die
during his minority.

"11-, _ 4-:m1 L-..1_L ,JAALL -[L1-__AI 1 1

EMBERS MEANS THE persons whose name are entered into the register of members. In
other words the persons who agree in mi ting to become members of the company are
called members. Similarly, shareholders are the persons who, holds certain shares of
the company. The terms members and shareholders are synonyms and used
interchangeably.

Conditions to become member: The following conditions must be satisfied to become a

member in a company. They are;

l. The person must agree to become member 2 The name of such person must be
entered in the register

In N Sat) aprasad Rao v. VLN Sastry AP it was held that a person may be regarded as a
member if he has acquired the right of membership though his name is not in the
register.

Distinction between member and shareholder:

l . A registered shareholder is a member, but a registered mem

ber may not be a shareholder because-the company may not have a share capital.

2. The bearer of a share warrant is only a shareholder and not

a member of the company as his name is struck off from the register of members

3 A legal representative of a deceased member 1s not a mem~ ber until he applies for
registration.

Who can be a member? Any person who 1s competent to contract as per Section 11 of
the Indian Contract Act, 1872 may become a member of a company. However, grant of
membership is subject to the memorandum and articles of the company. e.
g.,Company, for~ eigner, corporation, married woman, trade union. However, the ar
ticles may prohibit certain persons to become members.

who cannot be a member? Minor is not eligible to become a member. However, a

minor may be allotted fully paid shares and during minority the minor has no liability.
Similarly an insolvent is not eligi ble to become a member. Partnership firm is not
eligible to become a member. Similarly a receiver is not eligible to become a member.
Similarly, a joint-shareholders are not eligible to become a member.

Register of members: Section 150: Every company must keep register of member.
Register must contain the following particulars.

1. The names, addreses and occupation of each member 2 The sharesheld by each
member

3. The amount paid or agreed to be paid on those shares 4The date of entry in the
register as a member

Index of members: Section 151. Every company having more than 50 members shall
keep an index of the names of the members along with the register. Any alteration in
the register of members shall be noted in the index within 14 days of the alteration.
The index shall, at all times, be kept at the same place in the register of members. The
company and every officer of company who fails to keep the above index, shall be
punishable with a fine up to Rs 500/-.

1. By subscribing to memorandum: Section 41: A person may acquire membership in a

company by subscribing to the menu it an dum. In Liquidator v. Sulcmrm Bhai it was
held that the subscriber becomes a imember immediately after the registration ofthe
company.

2. By taking qualification shares: Section 266: /\ person may acquire membership in a

company by taking qualifications shares. He shall be deemed to be a member on the
registration of company. In ZamirAhmed v. DR Banaji AIR 1958 Bom 198 it was held
that a director who fails to take his qualification shares could not be treated as a
member.

3. By allotment of shares: Aperson may acquire membership in a company by

allotment of shares. In M ussel white v. CH Musselwhite & Sons (1962) 1 All ER 201 it
was held that a mere allotment of share cannot make a person to become a member
until his name is entered in the register of members.

4. By transfer of shares: Section 108: A person may acquire membership in a company

by transfer of shares. According to , the shares are transferable. In Lalithamba Bai v.
Harrisons Malayalam Ltd(1988) 63 Comp Cas 622 it was held that an entry in the
register of members is a mandatory condition to become a member in the company.

5. By transmission of shares: Aperson may acquire membership in a company by

transmission of shares. In Kamlabai v. Vithal Pd C0 (P) Ltd (1993) 77 Comp Cas 231 Kar
it was held that the aggrieved persons were entitled to relief because the succession
certificate was sufficient proof to decide the legal heirs.
6. By acquiescence or estoppel: Aperson may acquire membership in a company by
acquiescence or estoppel. Sometimes a person may not object whose name~ isentered
in the register by mistake or inadvertence of the company. In Re New Zealand Banking

l. Lifting the corporate veil

The chief advantage of incorporation from which all others follow is the separate legal
entity of the company. In reality, however, the business of the legal person is always
carried on by, and for the benefit of, some individeals. In the ultimate analysis, some
human beings are the real beneficiaries of the corporate advantages, for while, by
fiction of law, a corporation is a distinct entity, yet in reality it is an association of
persons who are in fact the beneficial owners of all the corporate property And what
the Salomon case decides is that in questions of property and capacity, of acts done
and rights acquired or, liabilities assumed thereby the personalities of the natural
persons who are the companys corporators is to be ignored

This theory of corporate entity is indeed the basic principle on which the whole law of
corporations is based. Instances are not few in which the courts have successfully
resisted the temptation to break through the corporate veil. A landladys bid toj regain
tenanted premises for self-business could not succeed as the business was in the name
of her company?8 The Supreme Court did not allow a shareholder to sue for the
violation of the fundamental rights of his company.59 Where a company acquires a
majority of the shares and also the assets of another company, that does not
extinguish the debt of one to the other.60 The shareholders and creditors of a
dissolved company cannot maintain an action for the recovery of its leftover assets. A
managing director cannot be compelled in his personal capacity to produce books of
which he has custody in official capacity.62 In Lee v Lees

(a) Determination of character.-Occasionally it becomes necessary to determine the

character of a company, for example, to see whether it is enemy. In such a case, the
courts may in their discretion examine the

character of persons in real control of the corporate affairs. Daimler Co Ltd V

Continental Tyre 8 Rubber Co Ltd72 is illustrative:

A company was incorporated in England for the purpose of selling tyres manufactured
in Germany by a German company. The German company held the bulk of the shares
in the English company. The holders of the remaining shares (except one) and all the
directors were Germans, resident in Germany. Thus the real control of the English
company was in German hands. During the World War I the English company
commenced an action to recover a trade debt. And the question was whether

the company had become an enemy company and should, therefore, be barred from
maintaining the action.

for benefit of revenue-The court has the power to disregard corporate entity if it is
used for tax evasion or to circumvent tax obligation. A clear illustration is Dinshaw
Maneckjee Petit, re:78
The assessee was a wealthy man enjoying huge dividend and interest income. He
formed four private companies and agreed with each to hold a block of investment as
an agent for it. Income received was credited in the accounts of the company but the
company handed back the amount to him as a pretended loan. This way he divided his
income into four parts in a bid to reduce his tax liability.

But it was held that the company was formed by the assessee purely and simply as a
means of avoiding super-tax and the company was nothing more than the assessee
himself. It did no business, but was created simply as a legal entity to ostensibly
receive the dividends and interests and to hand them over to the assessee as
pretended loans.

Fraud or improper conduct- The corporate entity is wholly incapablc of being strained
to an illegal or fraudulent purpose. The courts will refuse to uphold the separate
existence of the company where it is formed to defeat or circumvent law, to defraud
creditors or to avoid legal obligations. Corporate veil can be lifted in cases of fraud,
misrepresentation, diversion of funds.7 One clear illustration is Gilford Motor Co Ltd v
Horne

Horen was appointed as a managing director of the plaintiff company on the condition
that he shall not at any time while he shall hold the office of a managing director or
afterwards, solicit or entice away the customers of the company. His employment was
determined under an agreement. Shortly afterwards he opened a business in the name
of a company which solicited the plaintiffs customers.
the register of members cannot deprive him of his status. He acquires, as soon as the
company is registered, the full status of a member with all the rights and liabilities.

[Qualification shares [s. 266].-This has been dropped by 2013 Act]

2. By allotment-A person may become a shareholder by agreeing in writing to take

shares in the company by allotment. This has been dealt with in the preceding chapter.

3. By transfer.-One may purchase shares of a company in the open market and then
apply to the company to register him as a member. Section 2(55) which defines
member says that it includes the subscribers to the memorandum of a company and
every other person who agrees in writing to become a member of the company and
whose name is entered in its register of members. Thus it requires two things: (a) an
agreement in writing to become a member and (b) an entry in the register.8

4. By transmission [s. 56].--On the death of a member his executor or the person who
is entitled under the law to succeed to his estate gets the right to have the shares
transmitted to his name in the company's register of members. Transmission is
different from transfer. Section 56(2) which lays down the formalities of transfer
specially provides that nothing in the section shall prejudice the power of the company
to register as shareholder any person to whom the right to any shares has been
transmitted by operation of law.9 It follows that an instrument of transfer is not
necessary. No formalities like transfer deed, execution, attestation and stamp duty are
needed. Legal heirs as shown by the succession certificate are aggrieved persons
entitled to seek relief against refusal.
Nomination of shares and debentures [S. 72]

This section provides the facility to shareholders, etc, to register the

frame of any person with the company in whom the shares will be vested on the death
of the nominating shareholder. Debenture holders and depositors have also been
given similar rights. Nomination can be filed at any time in a manner to be prescribed.
Joint holders can also nominate any person for the purpose of vesting of shares in the
event of the death of all the joint holders. Such nomination will supersede the law of
succession and any will or dis position whether testamentary or otherwise. The
shares or debentures will be vested in the nominee to the exclusion of any claimant
whether under will or succession. The only process by which any change can be
brought about is that the security holder should himself change the nomination. Where
the nominee is a minor, the security holder may suggest any other name in the
prescribed manner in whom the shares would be vested should the nominee die
during his minority.

"11-, _ 4-:m1 L-..1_L ,JAALL -[L1-__AI 1 1

EMBERS MEANS THE persons whose name are entered into the register of members. In
other words the persons who agree in mi ting to become members of the company are
called members. Similarly, shareholders are the persons who, holds certain shares of
the company. The terms members and shareholders are synonyms and used
interchangeably.

Conditions to become member: The following conditions must be satisfied to become a

member in a company. They are;

l. The person must agree to become member 2 The name of such person must be
entered in the register

In N Sat) aprasad Rao v. VLN Sastry AP it was held that a person may be regarded as a
member if he has acquired the right of membership though his name is not in the
register.

Distinction between member and shareholder:

l . A registered shareholder is a member, but a registered mem

ber may not be a shareholder because-the company may not have a share capital.

2. The bearer of a share warrant is only a shareholder and not

a member of the company as his name is struck off from the register of members

3 A legal representative of a deceased member 1s not a mem~ ber until he applies for
registration.

Who can be a member? Any person who 1s competent to contract as per Section 11 of
the Indian Contract Act, 1872 may become a member of a company. However, grant of
membership is subject to the memorandum and articles of the company. e.
g.,Company, for~ eigner, corporation, married woman, trade union. However, the ar

ticles may prohibit certain persons to become members.

who cannot be a member? Minor is not eligible to become a member. However, a

minor may be allotted fully paid shares and during minority the minor has no liability.
Similarly an insolvent is not eligi ble to become a member. Partnership firm is not
eligible to become a member. Similarly a receiver is not eligible to become a member.
Similarly, a joint-shareholders are not eligible to become a member.

Register of members: Section 150: Every company must keep register of member.
Register must contain the following particulars.

1. The names, addreses and occupation of each member 2 The sharesheld by each
member

3. The amount paid or agreed to be paid on those shares 4The date of entry in the
register as a member

Index of members: Section 151. Every company having more than 50 members shall
keep an index of the names of the members along with the register. Any alteration in
the register of members shall be noted in the index within 14 days of the alteration.
The index shall, at all times, be kept at the same place in the register of members. The
company and every officer of company who fails to keep the above index, shall be
punishable with a fine up to Rs 500/-.

1. By subscribing to memorandum: Section 41: A person may acquire membership in a

company by subscribing to the menu it an dum. In Liquidator v. Sulcmrm Bhai it was
held that the subscriber becomes a imember immediately after the registration ofthe
company.

2. By taking qualification shares: Section 266: /\ person may acquire membership in a

company by taking qualifications shares. He shall be deemed to be a member on the
registration of company. In ZamirAhmed v. DR Banaji AIR 1958 Bom 198 it was held
that a director who fails to take his qualification shares could not be treated as a
member.

3. By allotment of shares: Aperson may acquire membership in a company by

allotment of shares. In M ussel white v. CH Musselwhite & Sons (1962) 1 All ER 201 it
was held that a mere allotment of share cannot make a person to become a member
until his name is entered in the register of members.

4. By transfer of shares: Section 108: A person may acquire membership in a company

by transfer of shares. According to , the shares are transferable. In Lalithamba Bai v.
Harrisons Malayalam Ltd(1988) 63 Comp Cas 622 it was held that an entry in the
register of members is a mandatory condition to become a member in the company.

5. By transmission of shares: Aperson may acquire membership in a company by

transmission of shares. In Kamlabai v. Vithal Pd C0 (P) Ltd (1993) 77 Comp Cas 231 Kar
it was held that the aggrieved persons were entitled to relief because the succession
certificate was sufficient proof to decide the legal heirs.

6. By acquiescence or estoppel: Aperson may acquire membership in a company by

acquiescence or estoppel. Sometimes a person may not object whose name~ isentered
in the register by mistake or inadvertence of the company. In Re New Zealand Banking

l. Lifting the corporate veil

The chief advantage of incorporation from which all others follow is the separate legal
entity of the company. In reality, however, the business of the legal person is always
carried on by, and for the benefit of, some individeals. In the ultimate analysis, some
human beings are the real beneficiaries of the corporate advantages, for while, by
fiction of law, a corporation is a distinct entity, yet in reality it is an association of
persons who are in fact the beneficial owners of all the corporate property And what
the Salomon case decides is that in questions of property and capacity, of acts done
and rights acquired or, liabilities assumed thereby the personalities of the natural
persons who are the companys corporators is to be ignored

This theory of corporate entity is indeed the basic principle on which the whole law of
corporations is based. Instances are not few in which the courts have successfully
resisted the temptation to break through the corporate veil. A landladys bid toj regain
tenanted premises for self-business could not succeed as the business was in the name
of her company?8 The Supreme Court did not allow a shareholder to sue for the
violation of the fundamental rights of his company.59 Where a company acquires a
majority of the shares and also the assets of another company, that does not
extinguish the debt of one to the other.60 The shareholders and creditors of a
dissolved company cannot maintain an action for the recovery of its leftover assets. A
managing director cannot be compelled in his personal capacity to produce books of
which he has custody in official capacity.62 In Lee v Lees

(a) Determination of character.-Occasionally it becomes necessary to determine the

character of a company, for example, to see whether it is enemy. In such a case, the
courts may in their discretion examine the

character of persons in real control of the corporate affairs. Daimler Co Ltd V

Continental Tyre 8 Rubber Co Ltd72 is illustrative:

A company was incorporated in England for the purpose of selling tyres manufactured
in Germany by a German company. The German company held the bulk of the shares
in the English company. The holders of the remaining shares (except one) and all the
directors were Germans, resident in Germany. Thus the real control of the English
company was in German hands. During the World War I the English company
commenced an action to recover a trade debt. And the question was whether

the company had become an enemy company and should, therefore, be barred from
maintaining the action.
for benefit of revenue-The court has the power to disregard corporate entity if it is
used for tax evasion or to circumvent tax obligation. A clear illustration is Dinshaw
Maneckjee Petit, re:78

The assessee was a wealthy man enjoying huge dividend and interest income. He
formed four private companies and agreed with each to hold a block of investment as
an agent for it. Income received was credited in the accounts of the company but the
company handed back the amount to him as a pretended loan. This way he divided his
income into four parts in a bid to reduce his tax liability.

But it was held that the company was formed by the assessee purely and simply as a
means of avoiding super-tax and the company was nothing more than the assessee
himself. It did no business, but was created simply as a legal entity to ostensibly
receive the dividends and interests and to hand them over to the assessee as
pretended loans.

Fraud or improper conduct- The corporate entity is wholly incapablc of being strained
to an illegal or fraudulent purpose. The courts will refuse to uphold the separate
existence of the company where it is formed to defeat or circumvent law, to defraud
creditors or to avoid legal obligations. Corporate veil can be lifted in cases of fraud,
misrepresentation, diversion of funds.7 One clear illustration is Gilford Motor Co Ltd v
Horne

Horen was appointed as a managing director of the plaintiff company on the condition
that he shall not at any time while he shall hold the office of a managing director or
afterwards, solicit or entice away the customers of the company. His employment was
determined under an agreement. Shortly afterwards he opened a business in the name
of a company which solicited the plaintiffs customers.

Government companies.---A company may sometimes be regarded as an agent or

trustee of its members or of another company and may, there fore, be deemed to have
lost its individuality in favour of its principal. In India this question has frequently
arisen in connection with Government companies. A large number of private
companies for commercial purposes have been registered under the Companies Act
with the President and a few other officers as the shareholders.95 The obvious
advantage of forming a Government company is that it gives the activities of the State
a little of the freedom which was enjoyed by private corporations and [the
Government} escaped the rules and principles which hampered action when it was
done by a Government department instead of a Government corporation. In other
words, it gave the Government some of the robes of the individualAnd in order to
assure this freedom the Supreme Court has reiterated in a number of cases that a
Government company is not a department or an extension of the State. It is not an
agent of the State. Accordingly its employees are not civil servants98 and prerogative
writs cannot issue against it.99 In one of these cases, the court remarked: