How to induction of a member of a company?

One can be a member of a company by any of the ways mentioned hereunder:

1. by subscribing to the memorandum of association 

2. by agreeing in writing 

- by application and allotment of shares 

- by taking a transfer of shares

- by transmission of shares 

3. By holding equity shares capital of a company whose name is entered as beneficial owner in the record of the Depository.

4. Estoppel i.e. by allowing his name to be in the register of members or otherwise holding himself out or allowing himself to be held out as a member.

Subscribers to the memorandum 

A subscriber to the memorandum of association becomes a member ipso facto on incorporation of the company, in respect of the shares subscribed by him without any further application by him or allotment of shares to him. He will be liable for whatever number of shares he has subscribed for. Subscribers to memorandum cannot have rescission on the ground that he was induced to become a subscriber by the misrepresentation of an agent of the company. The contract effect by the signature of the memorandum and registration of the company is not merely a contract between the subscriber and the company, it is contract existence of which is the basis for creation of corporation as one of the contracting parties and every other person who becomes a member becomes such on the footing that the contract exist.

Every subscriber to a company’s memorandum of association at once by subscribing irrevocably agrees to take from the company the number of shares mentioned opposite his signature unless all its share capital has been allotted to other persons. 

Agreeing in Writing

Two essential conditions have to be fulfilled by any person to become a member of a company other then by subscribing to its memorandum of association. They are :

a. an agreement in writing to become a member, and

b. entry in the register.

Unless both the conditions are satisfied one cannot be termed a member of a company, a member cannot become a member under this category unless he agrees to do so in writing. The agreement in writing of a subscriber for shares is always expressed in the application submitted by him, and the agreement of a renouncee of a letter of offer by his completing the application form contained in it or accompanying it.  There should be an agreement to become a shareholder which agreement can ripe into a concluded contract only by an offer to take certain number of shares and the same being accepted. Therefore, a written application for allotment of shares is necessary before a person can be entered as a member in the register of members.  

Membership may be acquired from an existing member by purchase of all or any of the shares standing in his name and lodging with the company a transfer deed duly executed (affixed share transfer stamp) along with share transfer by both the transferor and transferee together with the certificate. When the transfer is registered by the company the name of transferee is entered in the register of the company in place of transferor in respect of the shares comprised in the deed. 

A person can be a shareholder in consequence or by reason of the death of a member or any other event constituting transmission. But that person will become a member only when he applies in writing requesting the company to make him a member and the company puts his name on the register of the members.

By holding shares as beneficial owner in the record of the Depository.

A person holding equity share capital of a company whose name is entered in the records of the depository shall be deemed to a member of the company.

Estoppel

A person will be deemed to be member if he allows his name to be on the register of members or otherwise hold himself or allow himself to be hold out as a member. For example, the company has allotted without application shares in the name of Mr. A and the same is communicated to him. Mr. A signs a proxy or otherwise acts as the owner in respect of those shares. This is a case of becoming a member by Estoppel. Mr. A cannot subsequently deny that he is the holders of those shares. 

However, in the instant case Mr. A could have disclaimed his membership to the company when the allotment of shares was communicated to him. But having not done so and enjoying the benefit of membership he cannot subsequently disclaim membership of the company.