7 Useful Methods of Becoming a Member in a Company (Indian Companies Act, 1956)

2. By application and allotment:

“Every person who agrees in writing to become a member of the company and whose name is entered in the register of members shall be a member of the company.” [Sec. 41 (2)] The person intending to become a member in the company has to make an application and his offer will be said to have been accepted when letter of allotment is posted to him. His name is then put on the register of members of the company.

3. By holding equity shares in demat form:

A person holding equity shares of a company (may be through original allotment of shares or purchasing from the market) and whose name is entered as beneficial owner in the records of the Depository, shall be deemed to be a member of the concerned company even though there is no agreement in writing with the company nor his name appears in the register of members of the company. [Sec. 41 (3)]

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4. By transfer:

Shares of a company are transferable freely in case of public companies and with certain restrictions in private companies. A person may purchase shares from an existing member from the open market or otherwise and, then apply to the company for registration of the transfer. After the transfer being registered, the transferee of shares becomes member in the company as his name would be put on the register of members of the company.

5. By transmission of shares:

Transfer of shares on account of the operation of law is termed as transmission of shares. Death, insolvency or insanity of a member entitles the legal representative, official receiver and administrator respectively to get his name substituted in the company’s Register of Members in place of the deceased, insolvent or insane member.

6. Director agreeing to take up qualification shares:

A proposed director, who has filed an undertaking to take and pay for the qualification shares, is regarded as a member from his election to the office of director. [Sec. 266 (2)]

7. By conduct:

Ordinarily, a person can acquire membership of a company only by an agreement in writing, however sometimes he may be deemed to be a member of a company by conduct, if he:

(a) Allows his name, apart from an agreement to become a member, to be on the register of members, or

(b) Holds himself out to be a member, or

(c) Allows himself to be held out as a member.

In case, the name of a person is improperly entered in the company’s Register of Members, he should take prompt action for getting his name removed from the company’s Register of Members.

This can be done either by taking action for rectification of the Register of Members under section 155 or by instituting a suit for the purpose. Delay in taking action, after knowledge, may make him liable as a member.