Rights, Duties, and Cessation of Membership

(e) Rights, Duties, and Cessation of Membership

Rights of Members. A member's rights are usually grouped under three heads:

Statutory rights — conferred directly by the Companies Act, 2013, and not something the company

can take away by its own rules:

• Right to receive notice of every general meeting (Section 101).
• Right to attend and vote at general meetings (Section 47) — an equity shareholder's voting right is generally proportionate to their shareholding, on every resolution; a preference shareholder ordinarily votes only on resolutions directly affecting preference-shareholder rights, or when preference dividend has remained unpaid for the period prescribed under the Act.
• Right to appoint a proxy to attend and vote on their behalf (Section 105).
• Right to requisition an Extraordinary General Meeting if holding the prescribed minimum shareholding (Section 100).
• Right to receive a copy of the company's financial statements and Board's Report each year (Section 136).
• Right to inspect statutory registers (such as the Register of Members, Section 94) and the minutes of general meetings (Section 119).
• Right to receive dividend once it has been declared (Section 123) — no member can compel the company to declare a dividend, but once declared, payment becomes a legal debt owed to members.
• Pre-emptive right to be offered any further issue of shares first, in proportion to existing holding, before the company offers them to outsiders (Section 62).
• Right to receive a share certificate (Section 46) and, for shares held in demat form, to have the beneficial ownership correctly recorded.
• Right to apply to the National Company Law Tribunal (NCLT) for relief against oppression and mismanagement (Sections 241–242).
• Right to transfer shares (Section 44), subject only to any reasonable restriction a private company's Articles may validly impose.
• Right to nominate a person to whom the shares shall vest in the event of the member's death (Section 72).

Documentary rights — rights arising from the company's own charter documents:

• Right to inspect and obtain copies of the Memorandum and Articles of Association (Sections 17 and 399).
• Right to have the company's affairs conducted in accordance with the Memorandum and Articles.

Legal/proprietary rights — rights that treat the member's shareholding as property:

• Right to a share in the company's surplus assets on winding up, in proportion to shares held, after all liabilities are discharged.
• Right to bonus shares and rights shares, when issued.
• Right to sell or otherwise deal with the shares as an item of property (subject to any lawful transfer restriction).

Duties and Liabilities of Members. In return for these rights, a member is expected to:

• Pay calls on partly-paid shares promptly when validly made by the Board, failing which the member becomes liable to pay interest on the overdue amount and risks having the shares forfeited.
• Abide by the Memorandum and Articles of Association in dealings with the company.
• Refrain from acting in a manner that is fraudulent or oppressive towards the company or its other members.

On liability: in a company limited by shares, a member's liability is capped at the amount, if

any, remaining unpaid on the shares they hold — once shares are fully paid up, a member cannot

be called upon to contribute anything further, even if the company later runs into debt. In a

company limited by guarantee, a member's liability on winding up is capped at the guaranteed

amount they have undertaken to contribute. This principle of limited liability is precisely

what makes the company form attractive compared with a sole proprietorship or partnership, where

liability is unlimited. Company law's winding-up provisions also generally protect a past member who transferred away all their shares well before the company went into liquidation from

being called upon to contribute towards debts incurred after they ceased to be a member.

Cessation of Membership. Membership of a company comes to an end in any of the following ways:

1. Transfer of shares — once a transfer is registered, the transferor ceases to be a member for those shares.
2. Transmission of shares by operation of law — the original member's membership ends and the legal representative/heir is substituted. …