Members and Shareholders In Company Law
Here we have cover the legal definitions and roles of members and shareholders in company law, highlighting their influence on corporate governance.
Rahul Jaiswal20 Jun, 2024
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Meaning of Members
Person who is subscribers to memorandum of association (deemed member) or by agreement in writing with the company also can by way of application and allotment. Transfer of shares, by transmission of shares or by acquiescence or estoppel and includes beneficial owner which is In the record of the depository .Who Can Become a Member?
Company: Legal entity can be a member. Subsidiary company cannot become a member in a holding company. Partnership Firm: Cannot be a member. However in case of sec 8 company firm may become a company. LLP: legal entity can be a member. Section 8 Company: Can become a member unless prohibited by AOA/MOA. Foreigner: Foreigners can be a member (follow FEMA.) Minor: A minor cannot be a member. If shares are transferred to a minor transferor is liable for all future calls till he attains majority. A Company may refuse the transfer if the company knows of his minority. Minor can hold fully paid up shares through a guardian and also a minor after attaining majority, if he does not want to be a member he must repudiate his liability on the shares on ground of minority. Insolvent: An Insolvent is a member as long as his name is entered in the register of members having voting power and dividend to official assignee or receiver and have no other corporate benefit. Pawnee: Pawnee cannot be treated as a member. He never has the absolute ownership. Receiver: A receiver cannot exercise any of his rights till his name is entered in register of members. Person taking Shares in fictitious Shares: Such person is liable for criminal liability for commission of fraud. Trade Union: Registered trade unions can hold the share. ADR/GDR holder: Cannot be treated as a member however an ADR/GDR holder not a member till conversion. Joint Member: Two or more person applying for shares. Joint holder treated separately except in case of private company for the purpose of counting the members. In case of notice, dividend, voting rights treated as single member Max.4 members can hold one share jointly. Restrictions on Number of Members OPC: 1 Private company: Min. 2 and Max 15 Public Company: Min 7 and Max unlimited If the number is reduced below the minimum number then the liability becomes unlimited or NCLT can order the winding up. Cessation of Members : Cessation means cancellation of membership Occurs in the following situation:- A) Transfer of shares
- B) Transmission.
- C) Insolvent -Official assignee disclaims
- D) Redemption of preference share
- E) Surrender of shares
- F) Winding up of the company
Shareholders’ Agreements
Shareholders’ agreements (SHA) are quite common in business. In India shareholder’s agreements have gained popularity with bloom in newer forms of businesses. Register Sec-88 1) Register of members separately for each class 2) Register of debenture holder 3) Register of other securities 4) If there are more than 50 members then maintain index 5) Register of beneficial owner maintained by depository shall be treated as a register of members. 6) Register of foreign members In the register of members entry is made within 7 days from the allotment or transfer. Registers shall keep at the register office of the company or such place as may be decided by passing S.R.- a) At any place within same city town village where register office is situated
- b) The place in India where more than 10% of the total members resides.
- c) In case of any changes due to bonus, ESOP, right issue is made within 7 days from approval of the board.
- d) Authentication by CS or by an authorized person.
- a) Member’s debenture holder’s security holders are beneficial owners without any fees.
- b) Any other person wants to inspect may inspect by paying fees not exceeding Rs 50.
- c) Inspection during the business hours.
- Any person can obtain copies by paying fees not extending RS.10 per page.
- Company shall serve the copies within 7 days of the deposit of fees.
Also Read: Capital Budgeting, Meaning and Techniques
Preservation of Register
- Register of member-maintain permanently.
- Index of members is preserved permanently. Register of the debenture holder is preserved for 8 years from redemption.
- Annual return and financial statement-Preserved for 8 years from filing with the ROC.
- Foreign register is preserved permanently .
Section 90 Significant Beneficial Owners In A Company
Section 90(1) of the Act provides that every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than 25% or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control. As per Rule 2(h) of the Companies (Significant Beneficial Owners) Rules, 2018: “Significant beneficial owner” in relation to a reporting company means an individual referred to in sub-section (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely: (i) holds indirectly, or together with any direct holdings, not less than 10% of the shares; (ii) holds indirectly, or together with any direct holdings, not less than 10% of the voting rights in the shares; (iii) has right to receive or participate in not less than 10% of the total distributable dividend, or any other distribution, in a financial year through indirect holding alone, or together with any direct holdings; (iv) has the right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone .Declarations to be made by Significant Beneficial Owner
- a) Initial Disclosure: every individual who is a significant beneficial owner in a reporting company, was required to file a declaration in Form No. BEN-1 to the reporting company within ninety days from such commencement
- b) Continual Disclosure: Every individual, who subsequently becomes SBO/ or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within 30 days of acquiring such significant beneficial ownership or any change therein
Obligations of the Reporting Company
a) Filing of Returns with ROC: Upon receipt of a declaration from the Significant Beneficial Owner of the company and changes the reporting company shall file a return in Form No. BEN-2 with the Registrar within a period of 30 days from the date of receipt of such declaration, along with the prescribed fees. b) Notice to the Significant Beneficial Owner It should be noted that, the obligation of the individual to self-declare his significant beneficial holdings, and the obligation of the company to send notice seeking information from members are independent obligations.Consequences of Non-Reporting under Section 90 (5)
As per Rule 7 of The Companies (Significant Beneficial Owners) Rules, 2018, the reporting company shall apply to the Tribunal within a period of 15 days of the expiry of the period specified in BEN-4 (i) where any person fails to give the information required by the notice in Form No. BEN-4, within the time specified therein; or (ii) where the information given is not satisfactory. In accordance with section 90(7) of the Companies Act, 2013, for order directing that the shares in question be subject to restrictions, including: (a) restrictions on the transfer of interest attached to the shares in question; (b) suspension of the right to receive dividend or any other distribution in relation to the shares in question; (c) suspension of voting rights in relation to the shares in question (d) any other restriction on all or any of the rights attached with the shares in question VETO POWER As per the provisions of the Companies Act, 2013 there are some resemblances where the management can take decisions on their own, by virtue of law. However, there are some instances where the consent of the shareholders is mandatory to approve any decision or transaction which is said to be the veto power or veto right of shareholders of the company.Difference Between Veto Power and Casting Vote
- a) Veto power is different from the casting vote of the Chairman.
- b) Casting vote is applicable in case of equality of votes in favor and against.
- c) In case of equality the Chairman may give a vote either in favor or against the resolution and it can be carried accordingly.
- d) Veto power has not been defined in the Companies Act. However, the dictionary meaning of veto power is: “to refuse to admit or approve; specifically: to refuse assent so as to prevent enactment or cause reconsideration.
- A company may close the register for any period or periods not
- Max 30 days at a time Give 7 days prior notice.
Rights Of Members
When once a person becomes a member he is entitled to exercise all the rights of a member until he ceases to be a member in accordance with the provisions of the Act.- These rights can be categorized as under:
- Rights to receive copies of documents
- Right to inspect statutory registers/ returns and get copies.
- Right to attend meetings of the shareholders
- Other Rights
Collective Shareholder Rights
Members of a company have certain rights which can be exercised by members collectively by means of democratic process, i.e. by majority of members usually unless otherwise prescribed. The shareholders in majority determine the policy of the company and exercise control over the management of the company- A) Application to Board in case of Oppression and Management: However, if and when the majority becomes oppressive or is accused of mismanagement of the affairs of the company, Section 241 read with section 244 of the Act, confers right, to not less than one hundred members of a company or not less than one-tenth of the total number of its members whichever is less or any member or members holding not less than one-tenth of the issued share capital of the company.
- B) Making a requisition for calling Extraordinary General Meeting: Section 100 of the Companies Act, 2013 confers on members, holding not less than one-tenth of the paid-up share capital of a company, right to make a requisition to the Board of Directors to call an extraordinary general meeting of the company.
Rights of Dissenting Shareholders .
According to section 48(2), where the rights of any class of shares are varied, the holders of not less than ten percent of the issued shares of that class, being persons who did not consent to such variation or vote in favor of the special resolution, can apply to the Tribunal to have the variation canceled. Where any such application is made to the Tribunal, the variation will not be effective unless and until it is confirmed by the Tribunal. Application shall be made within twenty-one days after the date on which the consent was given or the resolution was passed.🔥 Trending Blogs
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