How a person becomes a member of a company and ceases to be a member of a company
1. Introduction:
A company is defined as a voluntary organization that is an artificial person created by law, having the limited liability of its members and a perpetual succession with its capital divided into transferable shares and which has a common seal.
Prof L. H. Haney:
A company is an artificial person created by law having a separate entity with a perpetual succession and common seal.
2. Characteristics of a company:
The following are the main characteristics of a company.
- It is a voluntary association.
- It is an artificial person.
- it has a separate legal entity.
- The liability of its members is limited.
- Ownership and management are in two different hands.
- The shares of the company are freely transferable.
- It has a common seal.
- It has a perpetual existence.
3. Types of Companies:
Companies are of three types which may be registered under the Companies Ordinance 1984.
A company limited by shares
A company limited by shares is one in which the liability of its member is limited to the extent of face value or the amount of their shares.
A company limited by guarantee
A company limited by guarantee is one in which each member is given a guarantee to contribute a specified sum to the company in the event of its being wound up.
Unlimited company
An unlimited company is the third type. it is a company in which the liability of the shareholder is unlimited as in an ordinary partnership.
4. Shareholder:
A member of the company is called a shareholder.
5. Ways for becoming a member of a company:
Following are the different ways in which a person can become a member of a company.
I. Membership by subscription:
All persons who subscribe their name to the memorandum are deemed to the members of the company. such shareholders must take their shares directly from the company and pay calls duly made on them.
II. Membership by application:
A person may become a shareholder of a company by applying to the company
(a) Revocation of application:
The applicant can revoke his application before the notice of allotment is put in the course of transmission to him.
(b) Types of application:
I. Simple:
There is no condition in a simple application.
II. Conditional:
If there is any condition, the allotment must be made based on the conditions specified.
III. Membership by transfer:
A person can become a member of a company by transfer of shares.
IV. Membership by succession:
The heirs of a deceased shareholder or the official assignee become entitled to be members in place of a deceased or an insolvent.
V. Membership by acquiescence or estoppels:
A person may be deemed to be a member of a company if he allows his name to be on the register of members or otherwise holds out as a member
6. Ways to cease to be a member:
A person may cease to be a member in one of the following ways:
Death of shareholder:
By the death of the shareholder, his shares would be transmitted to his representatives.
Rescission of the contract:
On rescission of the contract of membership on the ground of misrepresentation or mistake a person may cease to be a member of the company
Surrender of shares:
By valid surrender of shares, a member may cease to be a member of the company.
Winding up of company:
On winding up of the company a member ceases to be a shareholder of the company.
Insolvency of shareholder:
In case of insolvency of the shareholder, he may cease to be a member of the company:
Forfeiture of shares:
If shares of the member are forfeiture then, he is ceased to be a member of the company.
Transfer of shares:
A shareholder who transfers his shares to another person ceases to be a member of the company.
Sale by company:
By sale of the company in the existence of its lien over its shares a person may cease to be a member.
7. Conclusion:
To conclude I can say that, a company is a voluntary association formed by people to carry on a certain business for profit. Those who contribute their capital in the form of shares are shareholders of the company. there are no qualifications for membership prescribed by the Companies Ordinance 1984. the provisions of the contract act are applicable.