applying for removal of his name under Section 155 of tIle Companies Act

Beneficial Owner in the Records of Depository [Sec. 41 (3). Every person who holds equity share capital of a company and whose name is entered as

beneficial owner in the records of the depository, shall be deeO).ed to be a member of the company. As the shares are handed over to the depository, the

name of the person is removed from the record of the company. However, h has all the right of a member including that of dividend, voting, bonus shares

etc.

Enumerate the different ways in which a person ceases to be a member of a company.

A person shall cease to be a member of a company when lis name is removed from the register of members for a valid reason. The name

of a member may be removed from the register of members under any of the following situations:

1. When he transfers his shares to another person and transferee’s name is registered in his place.

2. When the company forfeits his shares for non-payment of calls.

3. When he surrenders his shares to the company, if such surrender is permitted by the Articles.

4. When the shares registered in his name are transmitted to another person on account of his death, lunacy or insolvency and his name is

removed from the Register of Members.

5. When he rescinds the contract to purchase shares on the ground of mis-statements in the prospectus or on the ground of irregular allotment.

6. When the member holds redeemable preference shares, and slIch shares are redeemed by the company US 80.

7. When the company issues to him share warrants in exchange of fully paid-up shares.

8. When his shares are sold by the company in exercise of its right of lien over them by. giving 14 days’ notice

9. On the dissolution of the Company.

10. When he is declared insolvent and the official assignee disclaims the shares under his right of disclaimer of onerous property’.

11. By resorting to buy-back of own shares by the company US 77 A.

12. When a member is expelled from the membership in accordance with the provisions of the company’s articles. The associations registered as

company such as a Stock Exchange or Chamber of Commerce etc. generally provided for expulsion of a member for the acts which are detrimental to

the interest of the company (Naresh Chand Sanyal v:_. Calcutta Stock Exchange Association Ltd; AIR 1971 SC 422; Bajaj Auto Ltd. v.N.K. Firodia (1971)

Government has revised the format of prospectus given in Schedule

The Government has revised the format of prospectus given in Schedule II of the Companies Act, 1956. The revised format has been made effective from 1^st Nov. 1991. This hs been done to provide for greater disclosure of intonation regarding the company, its management, the project proposed to be undertaken by the company and the management perception of risk factors so as to enable the investors to take an informed decision regarding investment in shares or debentures offered through public issue. The revised format of prospectus requires the prospectus to be divided into three parts.

In the first part brief particulars are to be given” about matters being mentioned below:

I. General Information. Under this head information is given about:

(i) Name and address of registered once of the company.

(ii) Name(s) of stock exchange(s) when application for listing is made. (ii) Declaration about the issue ammonium subscription of90 percent is not received within 60 days from the date of closure of issue.

(liv) Declaration about. the issue of allotment letters refunds within a period of 10 weeks and interest in case of any delay in refund at the prescribed rate under Section 73 (2) and (2A).(y) Date of opening of the issue. ,

(vi) Date of closing of the issue and date of earliest closing of the issue. (vii) . Names and addresses of auditors and lead managers.

(viii) Whether rating from CRISIL (Credit Rating Information Services of India Limited) or any rating agency has been obtained for the proposed debentures preference shares issue. If no rating has been obtained. this should be answered as ‘No’. If yes. rating should be indicated.

(ix) Names and addresses of the underwriters and the mount underwritten by them and the declaration by the Board of directors that the underwriters have sufficient resource to discharge their respective obligations.

Discuss the extent to which the Memorandum of Association and Articles of Association bind

(i) The members to the company;
(ii) The company to the members;
(iil) The members inter se;
(iv) The company to outsiders.
The Memorandum and Articles of Association are two important documents of company. When registered, they bind a company and the members
thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants (agreement) by the
company and each member to observe all the provisions of the Memorandum and of the Articles (Section 36). Thus, on registration, the Memorandum and


Articles of Association have binding effects on both the company and the members. It follows from the language of Section 36 that the Memorandum and
Articles bind the company to its members, the members to the company. the members to each other in an exceptional case, but they do not bind the
company or its members to outsiders. For the sake of clarity we shall discuss the legal effects of this provision (i.e. Section 36) under the following heads
in detail :
1. The Company is Bound to the Members. The Articles and Memorandum constitutes a contract binding the company to its members in their capacity as
members, and as such a company is bound to follow the provisions of these documents. Toms, a company may be restrained from doing an ultra vies
act by any member, or an act in breach of the Articles or Memorandum which is likely to affect his right or interest. In the case Wood E... Odessa

Waterworks Co., the Articles of the company provided that the directors may, with the sanction of the company at general meeting, declare a dividend to

be paid to the members. A resolution was passed to give members divided in debenture bonds. One of the members filed a suit to restrain the directors

from acling on the resolution. Held, the directors were restrained from doing so on the ground that "to be paid" means to be paid in cash and the

debenture-bond proposed to be issued were not a payment in cash.It must be noted that these documents bind the company to members and vice versa

in respect of their membership rights only and not contractual rights of other kinds.

Even subsequent registration cannot alter the validity of the contracts made before registration.

2. Unlimited Oversample Liability. Section 11(4) of the Companies Act provides that every member of an illegal association shall be personally li:1ble for all
liabilities incurred in such business, and can therefore, be sued by an .outsider. It is immaterial whether the outsider had or had not any knowledge of the
illegality of the association;
3. Penalty. According to Sec. 11(5) every member of such an association will be punishable with fine which may extend to Rs. 10,000.
The only relief available to a member of an illeg21 association is claim or refund of his original subscription, provided the amount is not used up in the
business ofthe illegal association (Greenberg Vs. Coopers ten). Such an ilIegal association is also liable to pay income tax on its profits (GopaIji & Co. Vs.
Commissioner of Income Tax). Further, an illegal association shall remain ilIegal even if its members are reduced to 20 unless it is registered (Madan Lal
Vs. Janki Prashad).
Problem 1. A husband and wife were the only two members of a private company, died in an accident. Does the company also come to an end?
Solution. No, the company does not come to an end even on the death of all its members. It will continue as usual because, it has a perpetual existence.
The legal heirs of the deceased members will become the members of the company by
transmission of shares. .
Problem 2. A, a b'ade.; carries on business under the name of A & Co. Ltd. without being incas a company with limited liability. Discuss the consequences


of the act of A.
Solution. Here A, an individual carries on business under the name of A & Co. Ltd. by using the word Ltd. at the end of its. name improperly is liable to a
fine upto Rs. 500 for each day for the period during which the word' Ltd.' has been improperly used (Sec. 631). Besides, the liability of A shall be unlimited
for all the debts incurred in the business.. The number of members in a public limited company became reduced to six on 10th September'
1988. The company incurs trade debts on 11th September' 1988, 2nd February 1989 and 17th March 1989. How far are the remaining members liable


for the debts?
Solution, Since the company carries on business for more than six months after the number of its members has been reduced below seven, all the
remaining six members will be severally liable for the whole of the debts of the company contracted after the reduction of number of its members below
the statutory