In the corporate framework, the concept of membership holds central importance. Members, commonly referred to as shareholders in companies limited by shares, are vital stakeholders who contribute to a company’s growth, governance, and vision. The Companies Act, 2013, governs the legal relationship between a company and its members, outlining both their rights and duties in detail. While members enjoy several rights such as voting, receiving dividends, and accessing information, they also have corresponding responsibilities. These duties ensure that the company functions in a fair, transparent, and accountable manner. Understanding the rights and duties of members not only strengthens corporate democracy but also protects the interests of the company and its stakeholders.

Who Can Be Members?

A “member” of a company is defined under Section 2(55) of the Companies Act, 2013. A person can become a member in the following ways:

1. Subscribers to the Memorandum of Association: The individuals who sign the Memorandum at the time of incorporation automatically become the first members of the company.

2. By Agreement in Writing: Any person who agrees in writing to become a member and whose name is entered in the company’s register of members becomes a member'.

3. Beneficial Owners in De-mat Accounts: In case of shares held in dematerialized form, the person whose name appears as the beneficial owner in the records of a depository is deemed to be a member.

4. Legal Representatives: Legal heirs or representatives of deceased members may be registered as members in the company’s records.

5. Companies, LLPs, and Other Legal Entities: Not just individuals, but even companies and other entities can become members of another company, subject to legal restrictions.

A person must be competent to contract under the Indian Contract Act, 1872 to become a member. This means minors, unsound persons, and insolvents are generally excluded, though they may hold shares through legal guardians or representatives.

Rights of Members

Members of a company are not merely investors — they are stakeholders in the company's operations, strategy, and future. Their rights give them power to influence decisions and ensure the management acts in the best interest of the company and its shareholders.

1. Right to Vote- This is perhaps the most vital right that members have. By casting their vote during general meetings (Annual General Meeting or Extraordinary General Meeting), members influence decisions on: • Appointment and removal of directors • Approval of financial statements • Declaration of dividends • Amendments to the Memorandum or Articles of Association • Mergers, acquisitions, or winding up Voting can be done either by show of hands (where each member has one vote) or through a poll (where votes are based on shareholding).

2. Right to Receive Dividends- When a company makes a profit and the Board of Directors recommends it, dividends are declared and distributed among members. The amount received depends on the number and type of shares held. However, no member can force the company to declare a dividend unless approved by the Board and ratified by the members in the general meeting. This right ensures that members benefit from the financial success of the company.

3. Right to Inspect Company Documents- Transparency is key to trust. To ensure that members are informed, they are legally allowed to inspect several statutory records: • Register of members • Financial statements • Minutes of general meetings • Directors' reports • Auditor’s reports This allows members to hold the management accountable and make informed decisions about their investments.

4. Right to Transfer Shares- In public companies, members are free to transfer their shares to others without restriction. This gives flexibility to exit or alter one’s investment. However, in private companies, this right is limited and governed by the Articles of Association. Some companies may require approval of the Board or impose first refusal rights. This right maintains liquidity in ownership and encourages investment.

5. Right to Call for a General Meeting - Section 100 of the Companies Act, 2013, allows members holding at least 10% of the paid-up share capital (with voting rights) to call for an Extraordinary General Meeting (EGM) if they feel urgent matters need to be addressed. This provision empowers minority shareholders to bring issues to the forefront.

6. Right to Legal Remedies Against Mismanagement- If the affairs of a company are being conducted in a manner prejudicial to its members or the public interest, affected members can file an application before the National Company Law Tribunal (NCLT) under Sections 241 and 242. These remedies include: • Preventing oppression by majority shareholders • Seeking fair treatment • Correcting mismanagement in finances or administration This protects the democratic nature of corporate governance.

7. Right to Share in Surplus on Winding Up- When a company is dissolved, and after all liabilities are paid off, the leftover assets are distributed among members in proportion to their shareholding. This ensures that members recover value from their investments, even in the company’s closure.

Duties of Members With power comes responsibility. Company members are expected to act not just in their own interest, but also in a way that supports the company’s long-term health and fairness in dealings.

➢ Duty to Pay- Calls on Shares If a member holds partly-paid shares and the company makes a “call” (i.e., requests the remaining unpaid amount), the member is legally bound to pay. Failure to pay may lead to penalties or even forfeiture of the shares. This ensures the company has access to full capital when needed.

➢ Duty to Comply with the Articles of Association - Every company operates under its constitution — the Memorandum and Articles of Association. Members are bound by these documents and must not act contrary to the company’s rules. For example, if the Articles restrict certain transfers, members must follow that process strictly.

➢ Duty to Act in Good Faith and Fairness-  Members should act honestly and in good faith, especially when participating in voting or company meetings. For instance, a large shareholder should not use their majority stake to suppress the interests of minority shareholders. Unethical use of voting rights or sabotage of company resolutions is considered bad faith. This principle is rooted in corporate fairness and the fiduciary nature of member-management relations.

➢ Duty Not to Misuse Legal Rights-  Members should not file baseless lawsuits or obstruct company meetings for personal agendas. For instance, using the right to call meetings or inspect documents to harass management without genuine cause is considered an abuse of process. This duty helps preserve the productive and respectful functioning of the company.

➢ Duty of Confidentiality-  Members may become aware of sensitive company data — such as financial strategies, internal reports, or future business plans. They must not leak such information or use it for personal gain (such as insider trading). Breach of this duty can attract both civil and criminal consequences. This is particularly important for companies dealing with patents, technology, or proprietary strategies.

Conclusion

Members play a critical role in any company. Their involvement ensures that corporate decisions reflect the collective will of those who have invested in the business. While they enjoy various legal rights to protect their investments and participate in governance, they also shoulder important duties that maintain the ethical and lawful functioning of the company. A balance between these rights and responsibilities is crucial. It not only builds trust among stakeholders but also strengthens the overall corporate governance system. As companies continue to grow and evolve, active and responsible participation from members will remain a cornerstone of sustainable success.

References

1. Ministry of Corporate Affairs. (2013). The Companies Act, 2013. Government of India. Retrieved from https://www.mca.gov.in

2. Companies Act, 2013, section 2(55). (India).

3. Companies Act, 2013, section 100. (India).

4. Companies Act, 2013, section 241–242. (India).

5. Companies Act, 2013, section 123. (India).

6. Palmer, F. B. (2022). Palmer’s company law (25th ed.). Sweet & Maxwell.

7. Davies, P. L., & Worthington, S. (2020). Gower and Davies’ principles of modern company law (11th ed.). Sweet & Maxwell.

8. Taxmann. (2023). Company law: A comprehensive guide to the Companies Act, 2013 (Latest ed.). Taxmann Publications Pvt. Ltd.

9. Singh, A. (2023). Company law (18th ed.). Eastern Book Company.