A "shareholder" "shareholder" denotes a person person who holds holds or owns the shares. shares. On the the other hand, a "member" denotes denotes a person person whose name appears on the Register of Members. For all practical purposes the words "shareholder" and "member" are used interchangeably because because in the normal course a shareholde shareholderr will also be a member and a member will also be a sharehol shareholder. der. But if looked at from a closer angle, we may come across a few exceptional cases where a shareholder shareholder may not necessarily be a member and a member may not necessarily be a sharehold shareholder. er. For example, companies limited by guarantee or unlimited companies having no share capital will have only members but no shareholders. shareholder s. Contrarily, a holder of a share warrant is a shareholder but not a member as his name is removed from the register of members immediately after the issue of such share warrant. Similarly, a transferee or the legal representative of the deceased may be a shareholder but he may not be member until he gets his name entered in the register of members. On the other hand, the transferor or the deceased person is a member so long as his name is on the register of members whereas he cannot be termed a shareholder shareholder..
Methods to attain membership : A person may become become a member member in a company company in any of the following ways: (1) By allotment : Ordinarily a person becomes a member of the company by applying for the shares in writing and securing the allotment thereof directly from the company. (2) By subscribing to the memorandum : Section 41 of the Act provides that— that—"The subscribers of the memorandum of a company shall be deemed to have agreed to become members members of the company, company, and on its registration shall shall be entered entered as members members in its register register of members." members." Thus, the the signatories to the memorandum become members of the company, simply by reason of their having signed the memorandum. Neither application form nor allotment of shares is necessary for becoming a member in their case. Even entry in the register of members is not necessary to confer upon them the rights and liabilities of membership (Official Liquidator Liquidator vs. Suleman Bhai). (3) By agreeing to purchase qualification shares : As per the provisions provisions of Section Section 266(2), all all such persons persons who have signed an undertaking undertaking to take and pay pay for their qualification qualification shares, for acting as a director of the company and delivered it to the Registrar, are also in the same position as subscriber subscriberss to the memorandum. As such they are also deemed to have become members automatically on the registration of the company. It must, however, be noted that this method of becoming a member is only possible in public companies having a share capital because Section Section 266 does not apply to: (a) a company not having having a share share capital; (b) a private company; company; or (c) a company company which was a private company company before becoming a public public company [Sec. [Sec. 266(5)]. 266(5)]. (4) By transfer : A person may also also become a member of the company by purchasing purchasing shares shares in the open open market and then then getting them registered registered in his name. (5) By transmission or succession : A person may become become a shareholder shareholder by by transmission of of shares through through death , lunacy lunacy or insolvency insolvency of a member. member. Transmission Transmission is different from transfer. It is an involuntary transfer. It takes place by operation of law, to a person who is entitled under the law to succeed to the estate of the deceased or lunatic automatically and does not require an instrument of transfer. (6) By principle of estoppel : If a person's name is improperly placed on the register of members and he knows and assents to it, that is, agrees in writing to become member member or attends company company meetings or/and accepts accepts dividend, he he shall be deemed to be a member member (In Re. M.F.R.D. M.F.R.D. Cruz). Under the principle of estoppel if a person holds himself out being in a position of membersh membership ip which is not true, he will then be estopped from denying that he is a member. It is important to note that such a person whose name has been wrongly entered in the Register of Members, does not become liable as a member unless either he agrees in writing to become a member of the company or he has in fact accepted the position and acted as a member. A person cannot be deemed to have become a member by means of ‘estoppel’ simply because his name is entered wrongly in the 'Register'. It should be observed that in first, fourth and fifth cases mentioned above, a person does not become a member in the strict sense of the term unless his name is entered in the Register of Members. During the time lag he is a shareholder only.