Modes of Acquiring Membership

The Companies Act, 2013 recognises several distinct routes by which a person may acquire membership of a company. Each route has its own legal mechanics.

1. By subscribing to the Memorandum of Association. Every person who signs the memorandum at the time of a company's incorporation is, by Section 2(55)(i) read with Section 10, deemed to have agreed to become a member, and must be entered as a member in the register of members as soon as the company is registered — no separate application, allotment, or payment is required to create this membership, though the subscriber remains liable to pay for the shares subscribed for.

2. By application and allotment. This is the most common route for new members. A person applies for shares — through a public issue under Sections 23, 26 and 39, a rights issue under Section 62, or a private placement under Section 42 — the Board allots shares against the application, and the applicant's name is entered in the register. Membership dates from the entry of the name, not merely from the allotment.

3. By transfer of shares. Shares in a company are movable property, transferable in the manner provided by the articles (Section 44). A transfer is effected by a duly executed and stamped instrument of transfer (Form SH-4) delivered to the company under Section 56; on registration of the transfer, the transferee becomes a member and the transferor ceases to be one, to the extent of the shares transferred.

4. By transmission of shares. Transmission operates by force of law rather than by an act of the parties — typically on the death, insolvency, or lunacy of a member. No instrument of transfer is needed; the legal heir, executor, or the Official Assignee produces proof of title (a succession certificate, probate, or letters of administration) and the company registers the new holder's name under Section 56.

5. By holding shares as a registered beneficial owner in a depository. Where shares are held in dematerialised form under the Depositories Act, 1996, the depository is the registered holder in the company's own register, but Section 89 of the Companies Act, 2013 and Section 10 of the Depositories Act together treat the person recorded as the beneficial owner in the depository's records as the real member for most practical purposes — entitled to dividends, notices, and voting rights.

6. By qualification shares (directors). Where the articles require a director to hold qualification shares, taking up and paying for those shares makes the director a member in the ordinary way — this is not a separate legal category, only a special circumstance in which membership of a company arises out of a statutory or articles requirement rather than an ordinary investment choice.

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