Cessation of Membership

Membership of a company, once acquired, does not last forever; the Companies Act, 2013 and general company law recognise a number of distinct ways in which a person ceases to be a member.

Transfer of shares. The most common mode — once a duly executed instrument of transfer is registered by the company under Section 56, the transferor's name is removed and the transferee's name is entered; the transferor ceases to be a member from the date of registration.

Transmission of shares. On the death, insolvency, or lunacy of a member, the shares vest, by operation of law, in the legal representative, the Official Assignee, or the committee of a lunatic; once the company registers the new holder's name, the former member's name is removed from the register.

Forfeiture of shares. Where a member fails to pay a call (or instalment) on shares within the time fixed, and the articles authorise forfeiture (as under the model articles in Table F of Schedule I), the Board may, after the prescribed notice, forfeit the shares; the forfeited member's name is then removed from the register of members, and he ceases to be a member, though he may remain liable for calls already due at the date of forfeiture.

Surrender of shares. A member may, with the company's acceptance and where the articles permit, surrender partly-paid shares in circumstances where forfeiture would otherwise have been justified — the effect on membership is the same as forfeiture.

Buy-back of shares. Where a company buys back its own shares under Section 68, the shares bought back are extinguished and physically destroyed, and the member whose shares were bought back ceases to be a member to that extent.

Redemption of redeemable preference shares. On redemption of redeemable preference shares under Section 55, the preference shareholder ceases to be a member in respect of those shares.

Reduction of share capital. Where a company reduces its share capital under Section 66 by extinguishing or reducing a member's shareholding, with the sanction of the Tribunal, the affected member's holding — and, if it is extinguished entirely, his membership — comes to an end.

Rescission of the contract of membership. A member who was induced to apply for shares by a misrepresentation in the prospectus, or whose application was otherwise voidable, may rescind the contract of membership within a reasonable time (and before winding up commences), on which his name is removed from the register.

Death of a sole holder without transmission being separately registered, insolvency followed by disposal of the shares, and winding up or dissolution of the company itself also bring a person's membership of a company to a practical end.