Duties and Liabilities of Members

Membership is not a one-sided bundle of rights; the Companies Act, 2013 and a company's own memorandum and articles impose corresponding duties and liabilities.

Liability to pay calls. The primary liability of a member of a company limited by shares is to pay, when called upon by the Board, any amount remaining unpaid on the shares held — up to the nominal (face) value of the shares. Once shares are fully paid up, a member ordinarily incurs no further liability to the company or its creditors in respect of those shares; this is precisely what 'limited liability' means under Sections 2(55) and 2(22).

Liability as a guarantee member. In a company limited by guarantee, a member's liability is not measured by shares at all but by the amount he has undertaken, in the memorandum, to contribute in the event of winding up.

Duty to be bound by the memorandum and articles. Section 10 of the Companies Act, 2013 makes the memorandum and articles binding on the company and every member as if each member had signed them and covenanted to observe them — this is often called the 'statutory contract' of membership of a company.

Duty to disclose beneficial interest. Under Section 89, a person whose name is entered in the register of members but who holds the shares as a nominee for someone else — and, correspondingly, the actual beneficial owner — must file the prescribed declarations with the company, so that true ownership is not concealed behind the register.

Duty to keep the company informed. A member is expected to notify the company of any change in address or particulars relevant to the register of members, and to return share certificates for endorsement or replacement when required in connection with a transfer or transmission.

Liability as a past member ('B list contributory'). If a company is wound up within one year of a member transferring his shares, and the existing members are unable to meet the company's debts, the transferor may, under the winding-up provisions of the Act, be called upon to contribute towards debts existing at the time of transfer — liability of a past member is thus not always extinguished the instant shares change hands. …