Maharashtra Board Class 11 Secretarial Practice Chapter 5 Members of a Company Solutions

Class 11 Secretarial Practice Chapter 5 Exercise Solutions

1A. Select The Correct Answer From The Options Given Below And Rewrite The Statements.

Question 1._______ is a person whose name is entered in the Register of Members.
(a) Member
(b) Creditors
(c) Registrar
Answer: (a) Member
In simple words: A person officially recognized as a part of a company, whose details are recorded in the company's official Register of Members, is known as a member.

🎯 Exam Tip: Understanding the definition of a 'member' and the significance of the 'Register of Members' is crucial for foundational knowledge in company law.

Question 2.A person can be called as a Member when the name is entered in _______
(a) Register of charges
(b) Register of Members
(c) List of Members
Answer: (b) Register of Members
In simple words: To be formally recognized as a company member, an individual's name must be officially recorded in the company's Register of Members, which serves as the authoritative record.

🎯 Exam Tip: The Register of Members is the primary legal document confirming membership; distinguish it from other registers or lists.

Question 3.A _______ cannot be a member of a company.
(a) foreigner
(b) woman
(c) minor
Answer: (c) minor
In simple words: A minor, someone under the legal age of majority, cannot enter into a binding contract and therefore cannot directly become a member of a company.

🎯 Exam Tip: Remember the legal capacity to contract is a fundamental requirement for company membership, excluding minors from direct membership.

Question 4.When a person buys shares of a company by filling up an application form, a person becomes a member by _______
(a) Application and Allotment of shares
(b) Subscribing to Memorandum
(c) Transmission of Shares
Answer: (a) Application and Allotment of shares
In simple words: The process of applying for shares and subsequently being allotted those shares by the company is a direct method through which an individual can become a member.

🎯 Exam Tip: This question highlights a common path to membership; differentiate it from other methods like subscribing to the Memorandum or transmission.

Question 5._______ means a person ceases being a member of the company of membership.
(a) Termination of membership
(b) Acquisition of membership
(c) Subscription to membership
Answer: (a) Termination of membership
In simple words: Termination of membership refers to the end of a person's association with a company as a member, causing their name to be removed from the Register of Members.

🎯 Exam Tip: Understand that termination signifies the cessation of a member's rights and liabilities within the company.

Question 6.A member has right to participate in General Meetings means, he has a right to _______
(a) receive dividends
(b) receive notice and agenda of a meeting
(c) to transfer his shares
Answer: (b) receive notice and agenda of a meeting
In simple words: The right to participate in General Meetings implies that a member is entitled to receive formal notifications and the meeting's agenda to be informed and prepared for discussions and voting.

🎯 Exam Tip: Core rights of members include receiving proper communication about company meetings to ensure their participation is informed and effective.

1B. Match The Pairs.

Question 1.

Group 'A'	Group 'B'
(a) Insane person	(1) Transfer of shares by operation of law
(b) Foreigner	(2) Cannot be a member
(c) Transmission of shares	(3) Cessation of membership
(d) Surrender of shares	(4) To get copies of Auditor's, Directors' Report, etc.
(e) Right of Members	(5) Can be a Member
	(6) To attend a board meeting
	(7) Duties of member
	(8) Surrendering all assets to the company
	(9) Demand or claim money from the company
	(10) Transfer of shares by order of Secretary

Answer:

Group 'A'	Group 'B'
(a) Insane person	(2) Cannot be a member
(b) Foreigner	(5) Can be a Member
(c) Transmission of shares	(1) Transfer of shares by operation of law
(d) Surrender of shares	(3) Cessation of membership
(e) Right of Members	(4) To get copies of Auditor's, Directors' Report, etc.

In simple words: This matching exercise connects different types of individuals and corporate actions with their implications for company membership and rights. An insane person lacks legal capacity, a foreigner can be a member under certain conditions, transmission of shares occurs by law, surrender leads to cessation, and members have specific rights like receiving reports.

🎯 Exam Tip: For matching pairs, clearly understand the legal definitions and common scenarios for each term to correctly link them. Focus on the core concept associated with each item.

1C. Write A Word Or A Term Or A Phrase That Can Substitute Each Of The Following Statements.

Question 1.End of membership of a person.
Answer: Termination of membership
In simple words: The ending of a person's status as a company member is formally known as termination of membership.

🎯 Exam Tip: This is a direct definition; remember the precise term for the cessation of membership.

Question 2.A person whose name is entered in the Register of Members.
Answer: Member
In simple words: An individual whose name is officially recorded in the company's Register of Members is legally recognized as a member.

🎯 Exam Tip: The core criterion for being a 'member' is the entry of one's name in the official register.

Question 3.Book in which names of all members are entered.
Answer: Register of Members
In simple words: The official document maintained by a company, listing all its members, is called the Register of Members.

🎯 Exam Tip: The Register of Members is a mandatory legal record and a fundamental document for company administration.

Question 4.Becoming a member of a company.
Answer: Acquisition of membership
In simple words: The act or process of gaining the status of a member in a company is termed as acquisition of membership.

🎯 Exam Tip: This term refers to the various methods by which one can obtain membership in a company.

Question 5.The subscribers of this document are considered Members of the company.
Answer: Memorandum of Association
In simple words: The Memorandum of Association is a foundational document whose initial subscribers are automatically deemed members of the company upon its registration.

🎯 Exam Tip: Remember that subscribers to the Memorandum of Association are the very first members of a company by default.

1D. State Whether The Following Statements Are True Or False.

Question 1.Buying shares is the most common way to become a Member of the company.
Answer: True
In simple words: While there are several methods, purchasing shares is indeed the most frequent and straightforward way for an individual to become a member of a company.

🎯 Exam Tip: Recognize common practices versus legal technicalities when identifying ways to acquire membership.

Question 2.Both individuals and body corporates can be members of the company.
Answer: True
In simple words: Companies, being legal entities, can have both individual persons and other corporate bodies (like another company) as their members, provided legal conditions are met.

🎯 Exam Tip: This highlights the broad scope of who can hold membership, encompassing both natural persons and artificial legal persons.

Question 3.Legal competency to enter into contracts is one of the criteria to become a member of the company.
Answer: True
In simple words: To become a member of a company, a person must have the legal capacity to form a contract, meaning they must be of sound mind, legal age, and not disqualified by law.

🎯 Exam Tip: Legal competency is a foundational requirement for any contractual relationship, including becoming a company member.

Question 4.Limited Liability Partnership cannot be a member of the company.
Answer: False
In simple words: A Limited Liability Partnership (LLP) is a separate legal entity, and as such, it can legally hold membership in a company.

🎯 Exam Tip: LLPs, being distinct legal persons, have the capacity to enter into contracts and hold shares, thus qualifying for company membership.

Question 5.Karta of HUF can be a member of the company.
Answer: True
In simple words: The Karta, as the head of a Hindu Undivided Family (HUF), can hold shares and thus be a member of a company on behalf of the HUF.

🎯 Exam Tip: Understand that while an HUF itself cannot be a member, its Karta can represent it in this capacity.

Question 6.Member of the company is conferred with several rights.
Answer: True
In simple words: Being a member of a company grants an individual various rights, including participation in meetings, voting, and receiving financial benefits.

🎯 Exam Tip: Members are not just investors but also have specific legal and participatory rights within the company structure.

Question 7.Member is entitled to profits of the company when a dividend is declared.
Answer: True
In simple words: Upon the declaration of dividends by a company, members who hold shares are legally entitled to receive their portion of the company's profits.

🎯 Exam Tip: Receiving dividends is a key financial right associated with company membership and shareholding.

Question 8.Members of the company can attend general and Board meetings of the company.
Answer: False
In simple words: Members are generally entitled to attend General Meetings, but Board meetings are typically restricted to the company's directors.

🎯 Exam Tip: Distinguish between General Meetings (for members) and Board Meetings (for directors) to avoid common misconceptions about participation rights.

Question 9.The right to appoint Director is given to Members.
Answer: True
In simple words: Members, as the owners of the company, hold the fundamental right to appoint and remove the company's directors, who manage its day-to-day affairs.

🎯 Exam Tip: This power of appointment reflects the ultimate control members have over the company's governance.

Question 10.Minor can be a member of the company.
Answer: False
In simple words: A minor, due to lacking the legal capacity to contract, cannot directly become a member of a company.

🎯 Exam Tip: Reinforces the principle that legal competency is essential for direct membership; a guardian can hold shares on a minor's behalf, but the minor is not the member.

1E. Find The Odd One.

Question 1.Subscribing to Memorandum, Forfeiture of Shares, Application, and allotment of shares.
Answer: Forfeiture of shares
In simple words: Subscribing to Memorandum and Application and Allotment of shares are ways to acquire membership, while Forfeiture of shares is a method by which membership is terminated.

🎯 Exam Tip: Classify the given terms into 'acquisition' and 'termination' of membership to identify the odd one out.

Question 2.Death or insolvency of member, Application, and allotment of shares. Surrender of shares.
Answer: Application and Allotment of shares
In simple words: Death or insolvency of a member and surrender of shares are circumstances leading to the cessation or termination of membership, whereas application and allotment of shares is a method of acquiring membership.

🎯 Exam Tip: Similar to the previous question, distinguishing between methods of acquiring and losing membership is key.

1F. Complete The Sentences.

Question 1.A person whose name is entered in the Register of Member of a company is called _______
Answer: Member
In simple words: The official recording of an individual's name in the Register of Members formally designates them as a member of the company.

🎯 Exam Tip: This is a fundamental definition in company law; ensure you know the specific term.

Question 2.In case of death or insolvency of a member, he will cease to be a _______
Answer: Member of a Company
In simple words: When a member dies or becomes insolvent, their legal status as a member of the company automatically terminates.

🎯 Exam Tip: Death and insolvency are natural events that lead to the automatic cessation of membership, often initiating the process of transmission of shares.

Question 3.Members have a right to appoint and remove the _______
Answer: Director
In simple words: Members, holding the ultimate power in a company, possess the right to choose and dismiss the individuals responsible for its management.

🎯 Exam Tip: This right underscores the democratic aspect of company governance, where members exert control over leadership.

1G. Select The Correct Option From The Bracket.

Question 1.

Group 'A'	Group 'B'
(1) Minor	..........................................
(2) Co-operative society	..........................................
(3) ..........................................	Can hold shares in the name of partners

(Partnership firm, Cannot become a member of a company, Can become a member of a company)
Answer:

Group 'A'	Group 'B'
(1) Minor	Cannot become a member of a company
(2) Co-operative society	Can become a member of a company
(3) Partnership Firm	Can hold shares in the name of partners

In simple words: This exercise matches legal entities or individuals with their capacity to be company members. A minor cannot directly be a member, a co-operative society can, and partners in a partnership firm can hold shares in their individual names.

🎯 Exam Tip: Focus on the legal personality and capacity to contract for each entity to correctly determine their eligibility for company membership.

1H. Answer In One Sentence.

Question 1.Which individuals cannot become a member of a company?
Answer: Minor, insolvent, insane, or lunatic cannot become a member of a company.
In simple words: Individuals who lack legal capacity, such as minors, insolvent persons, or those of unsound mind, are legally barred from becoming direct members of a company.

🎯 Exam Tip: Remember the three main categories of individuals legally disqualified from entering into contracts, which directly impacts company membership.

Question 2.What is the common way of becoming a member of a company?
Answer: Buying shares is the common way of becoming a member of a company.
In simple words: The most frequent method for individuals to acquire membership in a company is through the purchase of its shares.

🎯 Exam Tip: While various legal methods exist, identify the practical and most common method for general understanding.

1I. Correct The Underlined Word And Rewrite The Following Sentences.

Question 1.A Minor can be a member of a company.
Answer: A Guardian/Mai or person can be a member of a company.
In simple words: While a minor cannot directly be a member, a legal guardian or another competent person can hold shares and membership on their behalf.

🎯 Exam Tip: This question tests the understanding of legal capacity and representation for minors in company membership.

Question 2.Partnership Firm can be a member of the company.
Answer: The Partnership firm cannot be a member of a company.
In simple words: Unlike a company or LLP, a partnership firm does not have a separate legal identity, so it cannot be a member; individual partners can, however, hold shares.

🎯 Exam Tip: Understand the concept of 'separate legal entity' to differentiate between firms that can and cannot hold company membership.

2. Explain The Following Terms/Concepts.

Question 1.Member
Answer: A person who is a subscriber to the Memorandum of Association of a Company is called a member. OR A person whose name is entered in the Register of Members of the company is called a member of a company.
In simple words: A member is either an original signatory to the company's foundational document or anyone whose name is officially recorded in the company's list of members.

🎯 Exam Tip: Provide both definitions to show a comprehensive understanding of who qualifies as a member in different contexts.

Question 2.Transmission of shares
Answer: Transmission of shares refers to the transfer or passing of property or titles in shares by the operation of law from a member to his legal representative. When transmission of shares takes place the membership of the original shareholder is terminated.
In simple words: Transmission of shares is the involuntary transfer of ownership of shares due to legal events like death or insolvency, where shares pass to the legal heir or representative, ending the original member's status.

🎯 Exam Tip: Highlight the 'operation of law' and 'involuntary' nature of transmission, distinguishing it from voluntary transfer of shares.

Question 3.Cessation of Membership
Answer: Cessation of Membership of a company means the discontinuation of membership. The name of the old member is removed from the Register of the member.
In simple words: Cessation of membership means that a person stops being a member of a company, leading to their name being removed from the official register and the termination of their rights and duties.

🎯 Exam Tip: This term is synonymous with termination of membership; focus on the removal from the register as the key outcome.

Question 4.Acquisition of Membership
Answer: Any person who is competent to contract can become a member after fulfilling certain requirements for the membership of the company.
In simple words: Acquisition of membership is the process by which an eligible individual or entity gains the status of a company member after meeting all necessary legal and procedural conditions.

🎯 Exam Tip: Emphasize the 'competency to contract' as a prerequisite and that specific 'requirements' must be met for acquisition.

Question 5.Eligibility of Membership
Answer: Buying shares amount to making a contract, so any entity i.e. person/organization competent to make contact can be a member of the company.
In simple words: Eligibility for company membership primarily depends on an individual or organization having the legal capacity to enter into a contract.

🎯 Exam Tip: Focus on legal capacity as the overarching principle for determining eligibility, applicable to both natural and artificial persons.

3. Study The Following Case/Situation And Express Your Opinion.

Question 1.Mrs. & Mr. A work in a Bank. They have a daughter named Ms. Z who is 11 years old.
(a). Can Mrs. & Mr. A invest in shares of the company?
Answer: Yes, Mrs & Mr. A can invest in shares of the Company.
In simple words: As adults with legal capacity, Mrs. and Mr. A are fully eligible to invest in company shares.

🎯 Exam Tip: Adults of sound mind are generally eligible to invest in shares; minors are not.

Question (b).Can they buy shares in the name of their daughter Ms. Z?
Answer: Yes, Mrs. A and Mr. A can buy shares in the name of their daughter Ms. Z.
In simple words: Parents, as legal guardians, can purchase shares for their minor daughter, although the shares would be held in the guardian's name on her behalf until she becomes an adult.

🎯 Exam Tip: Distinguish between a minor directly holding shares (not allowed) and shares being held on their behalf by a guardian (allowed).

Question (c).Justify your answer in (a) & (b) in one sentence only.
Answer: Justification: Mrs. A and Mr. A can invest in shares of the Company as they are major citizens. Similarly, they can buy shares on behalf of their daughter as they are guardians of Ms. Z.
In simple words: The parents can invest as major citizens and can purchase shares for their minor daughter as her legal guardians.

🎯 Exam Tip: Combine the reasons for adult eligibility and guardian's right to act on behalf of a minor.

Question 2.M/s. ABC is a Partnership firm owned by Dr. A, Dr. B, Dr. C. The doctors want to invest the profits of ABC in the shares of a company.
(a). Can M/s ABC buy the shares of the company?
Answer: Yes M/s ABC can buy the shares of the company.
In simple words: While a partnership firm generally cannot be a member, in practice, its partners can collectively invest firm profits in shares in their individual or joint names.

🎯 Exam Tip: Note that partnership firms typically don't have a separate legal entity status for direct membership, but partners can invest on behalf of the firm. (The provided answer is 'Yes M/s ABC can buy the shares of the company.' - this might imply that M/s ABC is being treated as an entity that can invest, possibly through its partners' names, which needs careful interpretation. I'll stick to the OCR verbatim for the answer but adjust the simple words for nuance.)
In simple words: Yes, M/s ABC can invest its profits in shares, typically through its partners acting on behalf of the firm.

🎯 Exam Tip: Understand that even if a partnership firm itself cannot be a member (lacking separate legal identity), its partners can invest its funds.

Question (b).Can profits of M/s. ABC be invested in shares held in the names of Dr. A or Dr. B or Dr. C?
Answer: They can invest profit of M/s ABC in the names of Dr. A or Dr. B or Dr.C.
In simple words: The profits of the partnership firm can be invested in the names of the individual partners, who then become the shareholders.

🎯 Exam Tip: This confirms that individual partners, not the firm itself, hold the shares when a partnership invests.

Question (c).Are the doctors eligible to invest in shares of the company?
Answer: Yes, doctors are eligible to invest in shares of the company.
In simple words: As competent individuals, the doctors are eligible to personally invest in company shares.

🎯 Exam Tip: Individual eligibility, assuming legal capacity, is a basic criterion for share investment.

Question 3.ZEN Limited has some investible profits. Please guide Zen limited with respect to the following?
(a). Can ZEN Limited invest in the shares of itself?
Answer: No, ZEN Limited cannot invest in the shares of itself.
In simple words: A company cannot invest in its own shares, as this is generally prohibited by company law to prevent manipulative practices and maintain legal distinctiveness.

🎯 Exam Tip: Remember the legal principle that a company cannot be a member of itself or hold its own shares (with limited exceptions like buyback provisions).

Question (b).Can ZEN Limited invest in the shares of TEN Limited?
Answer: Yes, ZEN Limited can invest in the shares of TEN Limited.
In simple words: As a separate legal entity, ZEN Limited can invest its profits by purchasing shares in another company, TEN Limited.

🎯 Exam Tip: A company, being a legal person, can invest in and become a member of another company.

Question (c).Justify your answers in (a) & (b) in one sentence only.
Answer: Justification: ZEN limited being a legal person can be a member of another company TEN Limited. It cannot be a member of its own company as per the Companies act.
In simple words: ZEN Limited, as a legal entity, can own shares in another company, but company law prohibits it from owning its own shares.

🎯 Exam Tip: This justification highlights the concept of separate legal personality and the specific restriction against a company holding its own shares.

4. Answer In Brief.

Question 1.State any four ways of acquiring membership of a company.
Answer: Any person who is competent to contract can become a member after fulfilling certain requirements for membership in a company.
The different ways to acquire membership of a company are explained below:
(i) By Subscription:
• The subscriber to the Memorandum of Association of a company, who are signatories to the Memorandum of the company is deemed to have agreed to become the members of the company.
• When the company is registered, their names are entered as the members in the Register of Members. In this case, neither an application nor the allotment of shares is important to become a member.
(ii) By Application and Allotment of shares:
• This is one of the methods of acquiring membership. An application for shares is made by an applicant in response to the invitation given by the company through its prospectus.
• The company then allots the shares as an acceptance to his application and offers the shares. The applicant then becomes the shareholder and his name is entered in the ' Register of Members'.
(iii) By Transfer of shares:
• After acquiring the shares by way of sale or gift, the buyer (transferee) is required to get the shares registered in his name in the Register of Members of the company.
• For this an instrument of transfer signed by the buyer and the seller accompanied by the share certificate is to be lodged (sent to) with the company.
• When the company approves the transfer, the name of the transferee is entered in the Register of Members and thus, be becomes a member of a company. The name of the earlier member is struck off from the Register.
(iv) By Transmission of shares:
• In the event of the death or lunacy of a member, his legal heir or representative automatically becomes the shareholder.
• He is entitled to have his name entered in the Register of Members. He can do so by making an application to the company, supported by legal evidence of his title.
• When the company approves the title the name of the legal representative is entered in the Register of Members and thus, he becomes a member of a company.
• This transfer of shares by the operation of law is called the transmission of shares.
In simple words: Membership can be acquired through various methods including being a subscriber to the Memorandum, applying for and being allotted shares, receiving shares via voluntary transfer, or inheriting shares through legal transmission.

🎯 Exam Tip: Clearly enumerate at least four distinct methods of acquiring membership and briefly explain each to score well.

Question 2.State any four ways of cessation of membership of a company.
Answer: • Cessation/Termination of a member means the discontinuation of membership. His relationship with the company comes to an end.
• The name of the members is removed from the Register of Members as cessation.
• The original member is thus prevented from exercising his rights of membership.
The membership of a person may be terminated in any one of the following ways:
• Winding up of a company: When a company is 'winding up' or exists no more due to the process of law, the membership of all the members stands terminated or cessation automatically.
• Surrender of shares: When the company accepts surrender of partly paid-up shares, if permitted by its Articles, the membership of the shareholder is terminated.
• Transmission of shares: Transmission of shares refers to the transfer or passing of property or titles in shares by the operation of law from a member to his legal representatives. Such an automatic transfer of shares takes place in the event of the death or lunacy of a shareholder. When the transmission of shares takes place, the membership of the original shareholder is terminated.
• Transfer of shares: The transfer of shares is effected by registering an instrument called 'Instrument of Transfer' with the company. When the company approves the transfer, the Secretary cancels the name of the seller from the Register of Members and thus the membership of the shareholder is terminated.
• Forfeiture of shares: When the company forfeits the shares on account of non-payment of call money, the membership of the shareholder whose shares are forfeited comes to an end.
In simple words: Membership ceases through events like company winding-up, voluntary surrender of shares, involuntary transmission (death/insolvency), voluntary transfer of shares, or forfeiture due to non-payment of calls.

🎯 Exam Tip: Remember to differentiate between voluntary actions (surrender, transfer) and involuntary events (winding-up, transmission, forfeiture) leading to cessation.

Question 3.State the rights of members with regard to participation in general meeting.
Answer: As an integral part of a company, a member enjoys certain rights and has to fulfill certain duties and liabilities.
Following are the rights of members:
• Right to receive the notice and agenda of all general meetings, attend them in person or appoint a proxy, speak and vote at the meeting, demand to call Extra-Ordinary General meeting and pass resolutions.
• Right to receive the copy of annual reports, auditors' reports, statutory reports, and the annual account are on his registered address.
• Right to transfer shares, if any, imposed by the Article of Association.
• Right to receive bonus shares whenever issued by the company.
• Right to get the name entered in the Register of members and be registered as a member of the company,
• Right to receive a share in the surplus property and assets of the company on winding up of the company after all other claims have been paid.
In simple words: Members have rights including receiving meeting notices, attending, speaking, and voting at general meetings, accessing company documents, transferring shares, and receiving dividends and surplus assets during winding up.

🎯 Exam Tip: Focus on key participatory rights like attending and voting at meetings, and informational rights like receiving reports and notices.

5. Justify The Following Statements.

Question 1.Member and Shareholder are interchangeable terms.
Answer: • A person whose name is entered in the register of members of a company is called a member and a person who owns shares of a company and holds actual possession of shares is called a shareholder of a company.
• A shareholder becomes a member of a company only when his name is recorded in the Register of Members. A person who buys a share in an open market is a shareholder. But he cannot be called a member until the procedure of transfer of shares in his name is completed.
• In the case of death, or lunacy of a member of a company, his legal representative becomes the shareholder but he cannot be called a member until the procedure for transmission of shares in his name is completed.
• A shareholder who transfers his share to another person is not a member until the transfer is registered and the name of the transferee is recorded in the Register of Members.
• A person who subscribes to the Memorandum of Association may not be called a member until the shares are actually allotted to them. Thus, I agree with the above statement.
In simple words: Member and shareholder are not strictly interchangeable; a shareholder owns shares, but only becomes a member once their name is officially recorded in the Register of Members, highlighting a legal distinction based on registration.

🎯 Exam Tip: Clearly explain the distinction between merely owning shares (shareholder) and being officially registered (member), using examples like subscribers or legal representatives.

Question 2.A foreigner can invest in shares of an Indian company.
Answer: • A foreigner can enter into contract.
• Foreigners can buy shares and become a member of an Indian company, subject to provisions of FEMA Act 1999.
• 'FEMA' aims at facilitating external trade and promote the foreign exchange market in India.
• Foreigner falls under the category of individual eligibility to be a member of a company.
• Thus, I agree with the above statement.
In simple words: Yes, a foreigner can invest in an Indian company's shares and become a member, provided they comply with the Foreign Exchange Management Act (FEMA) and other regulatory requirements.

🎯 Exam Tip: While generally true, always qualify the statement by mentioning compliance with specific laws like FEMA for foreign investment.

 

Question 3. The insolvent person ceases to be a member of the company.
Answer: Yes, I agree with the statement.

• On becoming insolvent, a person's beneficial rights of shareholders pass to Official Receiver or Assignee.
• Thus, the insolvent person stops being a member of the company on his insolvency.
• Official Receiver is an officer appointed by the court, to deal with the property and assets of the insolvent person.
• On being insolvent, a member ceases to be a member of the company and thus he can neither attend Annual General Meeting nor can he vote on matters of the company.
• Thus, I agree with the above statement.

In simple words: An insolvent person loses their membership in a company because their legal rights to shares are transferred to an Official Receiver, making them unable to participate or vote.

🎯 Exam Tip: Highlight the legal implications of insolvency on membership and the role of the Official Receiver for a comprehensive answer.

 

Question 4. The Co-operative Society is eligible to be a member of the company.
Answer: Yes, I agree with the statement.

• The Co-operative Society falls under the category of Organizations eligible for membership of a company.
• Co-operative Societies are registered under the State Co-operative Societies Act of respective states.
• A Co-operative Society is a registered entity, it can become a member of the company.
• Thus, it can invest in shares of the company and also enjoys all the rights of membership.

In simple words: Co-operative Societies, being registered legal entities, can become members of a company, invest in its shares, and exercise membership rights.

🎯 Exam Tip: Emphasize the legal status of Co-operative Societies as registered entities that allows them to hold company membership.

 

Question 5. Subscribers to the Memorandum of Association are the first members of the Company.
Answer: Yes, I agree with the statement.

• There are different ways for the acquisition of membership in a company.
• Subscribing to Memorandum of Association is one of the ways of acquiring membership in a company.
• Subscribers to the Memorandum of Association of companies are different in different cases i.e. Seven (7) members in the case of a Public Company, Two (2) members in the case of a Private company, and One (1) in case of One Person Company.
• Thus, I agree with the above statement.

In simple words: Individuals who sign the Memorandum of Association at the company's formation are automatically considered the first members upon registration, even before shares are formally allotted.

🎯 Exam Tip: Focus on the Memorandum of Association as the foundational document that establishes initial company membership.

 

Question 6. The nominee of the member of OPC becomes its member on the death of the member.
Answer: Yes, I agree with the statement.

• In an acquisition of membership, there are different ways to become a member of the company.
• In the case of One Person Company, the name of the nominee is given beforehand in the Memorandum of One Person Company.
• So, in case of the death of a member, his nominee automatically becomes the sole owner of the company.
• But he cannot be called as a member of the company until all procedure of transmission of shares is completed.
• Thus, I agree with the above statement.

In simple words: A nominee in a One Person Company (OPC) automatically becomes the sole owner of shares upon the member's death, though formal membership requires completing the share transmission process.

🎯 Exam Tip: Explain the special provision for nominees in OPCs, clarifying that ownership is automatic but formal membership requires legal procedures.

 

Question 7. Members of the company are entitled to several rights.
Answer: Yes, I agree with the statement.

• Being an integral part of a company, members enjoy certain rights and have to fulfill the duties and liabilities.
• Member has the right of accessing books and documents of a company. He can make copies of the Memorandum and Article of Association. He has the right to appoint Auditors and Directors and decide their salary and remuneration.
• He can inspect the Register of Members and Debentureholders register.
• He has right to make a Fundamental Corporate Decision like - Change of Registered office of the company, increase authorized capital, change in the object of the company, make amendment in Articles of Association, right of winding up the company, etc.
• He has the right to receive the notice and agenda of a meeting. He can attend the Annual General Meeting in personal or he can send his proxy to attend the meeting.
• Thus, I agree with the above statement.

In simple words: Members have significant rights, including access to company documents, participation in meetings, appointing directors, and influencing major corporate decisions.

🎯 Exam Tip: Provide specific examples of rights to justify the statement, categorizing them for clarity (e.g., informational, participatory, decision-making).

 

Question 8. Members of the company have some fundamental corporate decision-making rights.
Answer: Yes, I agree with the statement.

• Members hold powers to decide at meetings on important matters.
• He has certain fundamental rights like a change of registered office of the company.
• He can increase the authorized capital of the company.
• He can change the objects of the company because he is a member of the company as well as the owner of the company.
• He also has a right to amend the Articles of Association.
• He also has a right to acquisitions, mergers, and takeovers by the company. He can appoint sole selling agents for the company.
• He also has a fundamental right to close or wind up the company.
• Thus, I agree with the above statement.

In simple words: Members possess key powers to make major corporate decisions, such as altering the company's capital or structure, and even deciding its closure, reflecting their ownership.

🎯 Exam Tip: Focus on the strategic and structural decisions members can influence (e.g., capital, objects, winding up) to demonstrate their fundamental rights.

 

Question 9. Transfer of shares results in termination of membership.
Answer: Yes, I agree with the statement.

• On termination of membership, the name of the member is removed from the Register of Members.
• Companies Act empowers every shareholder to transfer his share in the manner laid down in the Articles and in accordance with the provisions of the law.
• A transfer of share takes place when a registered shareholder transfers his shares by sale or gift to another person voluntarily.
• Transfer of shares by operation of law in event of death or insolvency of members is called the transmission of shares. The legal representative/heir in case of death, official receiver in case of insolvency, and administrator in case of insanity replaces the concerned member.
• When the company approves the transfer, the Secretary cancels the name of the seller i.e. (transferor) from the Register of Members, and the membership of the shareholder stands terminated after transferring the shares.
• Thus, I agree with the above statement.

In simple words: When shares are transferred, the seller's name is removed from the Register of Members upon company approval, thereby terminating their membership.

🎯 Exam Tip: Clearly differentiate between the act of transferring shares and the formal termination of membership, which occurs upon registration of the new shareholder.

6. Answer The Following Questions.

 

Question 1. Explain the circumstances when Member is not a shareholder and vice-versa.
Answer: An organization is formed for purpose of education, sports, health, business with well-defined objectives and relationships. The organization is by 'members' and 'only for members.'
"Member means a person whose name is entered in the Register of Members of the company and are the holder of equity shares and are a beneficial owner in the records of Depository.
Buying shares is the most common and easy way where a person becomes a member of the company.
Following are different circumstances when Member is not a shareholder:

• Member without being a shareholder:
  • Signatories to the Memorandum of Association: They are members of the company but not shareholders till the shares are not allotted to them.
  • Company Limited by Guarantee Amount: This company does not have any share capital. Therefore, it has only members, not the shareholders.
  • Transfer of shares: Transferor (seller) of shares continue to be a member of the company, till his name is removed from the Register of Members and is replaced by transferee's (buyer)name.
  • On the death of a member: On the death of a member, his legal heir becomes the holder of deceased member shares. But he is not a member of a company until the procedure of transmission of shares is completed.
  • On insolvency of member: Shares of insolvent member are held by court-appointed Official Receiver. So the insolvent person continues to be a member but not the shareholder.
• Shareholder without being a member: The buyers of the shares, Official Receiver in case of insolvency; legal heir in case of death as explained above are shareholders but not the members of the company.

In simple words: A person can be a member without being a shareholder (like signatories to MoA before allotment) and vice-versa (like a legal heir who owns shares but isn't yet registered as a member).

🎯 Exam Tip: Provide clear examples for each scenario (member without shareholder, shareholder without member) to illustrate the distinction effectively.

 

Question 2. Explain the eligibility of memberships of a company.
Answer: The organization is formed and managed by persons termed as 'Member'.
So it is rightly said organization is by 'member' and 'only for members'.
Any entity i.e. person or organization who is competent to make a contract can become a member of the company.
Subject to provisions of the Companies Act, 2013, Memorandum of Association, and Articles of Association, any person who is legally competent to manage their own affairs ('Sui-Juris) can become a member of the company.
Eligibility Criteria:
(A) Individuals:

• Major person: Any person domiciled (staying) in India, having completed 18 years of age, having a sound mind, and not be disqualified by law can become a member of the company.
• Minor: A minor cannot be a member of a company but a guardian can be a member of a company on behalf of a minor.
• Insolvent: Insolvent person cannot be a member of a company as his beneficial rights of shareholding are held by the Official Receiver, an officer appointed by the court.
• Insane/Lunatic: Insane/Lunatic person is unable to enter into a contract which makes him ineligible to be a member of a company.
• Foreigner: A foreigner or Non-resident Indian can become a member of a company, subject to provisions of FEMAAct, 1999.

(B) Organizations:

• Company: A company being a legal person can be a member of another company if authorized by its Memorandum of Association. It cannot be a member of its own company.
• Co-operative Society: Since co-operative societies are registered entity, they can be a member of the company.
• Limited Liability Partnership (LLP): Such, firms are treated as a juristic person, hence it can be a member of the company.
• Hindu Undivided Family: HUF firm is prohibited to be a member of a Company, but 'Karta' can buy a share in his name on behalf of Hindu Undivided Family firm.
• Partnership Firm: Since the partnership firm is not a registered entity. It cannot be a member of the company. But partners themselves can buy shares in their individual names.
• Trust: Registered trust can become a member of a company in its own name.

In simple words: Eligibility for company membership requires legal competency to contract, covering major individuals, minors through guardians, and specific types of registered organizations, while excluding insolvents and insane persons.

🎯 Exam Tip: Organize the eligibility criteria clearly by individual and organizational types, listing specific conditions or prohibitions for each category.

 

Question 3. Explain different ways to acquire membership of the company briefly.
Answer: Any person who is competent to contract can become a member after fulfilling certain requirements for membership in a company.
The different ways to acquire membership of a company are explained below:
(i) By Subscription:

• The subscriber to the Memorandum of Association of a company, who are signatories to the Memorandum of the company is deemed to have agreed to become the members of the company.
• When the company is registered, their names are entered as the members in the Register of Members. In this case, neither an application nor the allotment of shares is important to become a member.

(ii) By Application and Allotment of shares:

• This is one of the methods of acquiring membership. An application for shares is made by an applicant in response to the invitation given by the company through its prospectus.
• The company then allots the shares as an acceptance to his application and offers the shares. The applicant then becomes the shareholder and his name is entered in the ' Register of Members'.

(iii) By Transfer of shares:

• After acquiring the shares by way of sale or gift, the buyer (transferee) is required to get the shares registered in his name in the Register of Members of the company.
• For this an instrument of transfer signed by the buyer and the seller accompanied by the share certificate is to be lodged (sent to) with the company.
• When the company approves the transfer, the name of the transferee is entered in the Register of Members and thus, be becomes a member of a company. The name of the earlier member is struck off from the Register.

(iv) By Transmission of shares:

• In the event of the death or lunacy of a member, his legal heir or representative automatically becomes the shareholder.
• He is entitled to have his name entered in the Register of Members. He can do so by making an application to the company, supported by legal evidence of his title.
• When the company approves the title the name of the legal representative is entered in the Register of Members and thus, he becomes a member of a company.
• This transfer of shares by the operation of law is called the transmission of shares.

(v) By holding shares in the Dematerialized form:
The person holding shares in dematerialized form and has his name as a beneficial owner in the records of Depository is treated as a member of the company.

(vi) Nominee of One Person Company (OPC):
In the case of One Person Company, the name of the nominee is given beforehand in the Memorandum of One Person Company. He becomes the sole owner of the shareholdings of the deceased member.

(vii) By Acquiescence:
If a person is wrongly entered in the Register of Members or holds or allows his name as the Register of Members without informing the company about its mistake, he is treated and made liable as a member in the event of liquidation of a company.In simple words: Membership can be acquired by subscribing to the Memorandum, applying for and being allotted shares, transferring or transmitting existing shares, holding dematerialized shares, being a nominee in an OPC, or through acquiescence if one's name is on the register.

🎯 Exam Tip: List each method of acquiring membership clearly and briefly explain the key action or legal event involved for each.

 

Question 4. Explain how membership of the company terminates.
Answer: Cancellation of membership of a shareholder is called Termination or Cessation of membership. On termination of membership, all rights of a member are canceled.
Following are the ways of Termination of membership:
(i) Transfer of shares: Transfer of shares is effected by registering an instrument called Instrument of Transfer with the company. The secretary cancels the name of the seller from the Register of Members and thus the membership of the shareholder is terminated.

(ii) Transmission of shares: Transmission of shares refers to the transfer of shares by operation of law. This is an automatic transfer of a share in the event of death or lunacy of a shareholder. When the transmission of shares takes place, the membership of an original shareholder is terminated.

(iii) Winding up: When a company is winding up, the membership of all the members stands terminated automatically.

(iv) Forfeiture of shares: When a company forfeits the shares on account of non-payment, of calls on shares, shareholder's shares are forfeited and he ceases to be a member of the company.

(v) Surrender of shares: When a company accepts surrender of partly paid-up shares if permitted by its Articles, the membership of the shareholder is terminated.

(vi) Redemption of Preference shares: When the redeemable preference shares are redeemed (repaid) to the shareholder by the company as per the terms of issue, the membership comes to an end.

(vii) Right of lien as shares: When a shareholder has some obligation towards the company, it is said to be lien on shares by the company. It means shareholders cannot sell their shares until they clear their dues or obligations if any. In case of his failure to pay his dues company cancels his shares and his membership comes to an end.In simple words: Membership terminates through various means, including formal share transfers or transmissions, company winding up, forfeiture of shares for non-payment, surrender of partly paid-up shares, redemption of preference shares, or cancellation due to a lien if obligations are unmet.

🎯 Exam Tip: Provide a clear, concise explanation for each method of membership termination, focusing on the event that triggers the cessation.

 

Question 5. Explain the Rights of a Member of a company.
Answer: Being a part of a company, a member enjoys certain rights and has to fulfill certain duties.
Right of members are as follows:
1. Right of accessing books and documents: A member can get copies of Memorandum and Articles of Association, Auditors and Directors Reports, Balance Sheet and Profit and Loss A/c. Members can also check the Register of members.
2. Right to participate in General meetings: Members have the right to receive notice and agenda of all general meetings, attend the meeting personally or appoint a proxy, vote at the meeting, etc.
3. Right to appoint and remove a Director: Member of a company has the right to appoint and remove the directors.
4. Shareholding rights: Shareholders have the right to receive a share certificate, transfer his shares, to get right issue and bonus issue shares.
5. Right to Class Action Suit: The Act confers the right of Class Action Suit to members against the company or their directors in the time of any unlawful or wrongful act. They can file a petition to wind up the company.
6. Right to receive surplus assets: In the event of the winding-up of the company, the member has the right to get a share in surplus assets of the company.
7. Right with respect to the company's accounts and its audit: Members have the right to approve the annual accounts at the Annual General Meeting. He can appoint auditors, fix their salary, and has a right to remove the auditors.
8. Right to participate in the profit of the company: Members invest money in the company and expect a certain return in form of dividends. They have the right to receive dividends within 30 days of its declaration in the Annual General Meeting.
9. Right to make Fundamental Corporate Decision: Members hold powers to decide at a meeting on important matters like a change of Registered office of the company, increase authorized capital of the company, change the objects of the company, to amend an Articles of Association, right of acquisitions, mergers and takeovers by the company, appoint a sole selling agents for the company, rights to close or wind up the company.In simple words: Members have rights including access to company documents, participation in general meetings, appointing/removing directors, receiving share-related benefits, initiating class action suits, receiving surplus assets upon winding-up, overseeing accounts/audits, and participating in profits via dividends, as well as making fundamental corporate decisions.

🎯 Exam Tip: Structure your answer by categorizing rights (e.g., informational, participatory, financial, decision-making) for better clarity and recall.

Activity (Textbook Page No. 72)

 

Find the composition of shareholding of a listed public company.
Answer: "Listed Public Companies” means a public company that has any of its securities listed in any recognized stock exchange. One of the advantages to the shareholder(s) of a Public Company is free transferability of shares and in the case of Listed Companies such free transferability also ensures quick liquidity of the investment. However, such liquidity is only possible when there is an existence of buyers and sellers in the market. In many Listed Companies, a large chunk of the paid-up capital is held by the promoter group which reduces the public shareholding to a great extent.
The promoter group usually refrains from trading in their shares which in turn reduces the number of buyers and sellers in the market and the liquidity factor also gets affected. In order to ensure a minimum level of Public Shareholding in Listed Public Companies and to provide liquidity to the investors, the Ministry of Finance amended the Securities Contracts (Regulation) Rules, 1957 [SCCR, 1957] twice in the year 2010. The press note released by the Ministry of Finance upon the first amendment of SCCR, 1957 stated "A dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices".In simple words: The shareholding of a listed public company includes diverse public investors, but often a significant portion is held by the promoter group, impacting market liquidity. Regulations aim to ensure a dispersed shareholding for fair pricing and market activity.

🎯 Exam Tip: Explain the dual nature of listed company shareholding-public investment for liquidity and promoter holdings impacting market depth-and the regulatory role in balancing this.