11th SP Chapter 5 Exercise (Members of a Company) Maharashtra Board – Free Solution

11th SP Chapter 5 Exercise

Chapter 5 – Members of a company

Q.1 (A) Select the correct answer from the options given below and rewrite the statements.

1) ………….. is a person whose name is entered in the Register of Members.
a) Member
b) Creditors
c) Registrar

2) A person can be called as a Member when the name is entered in ………………….
a) Register of charges
b) Register of Members
c) List of Members

3) A …………………. cannot be a member of a company.
a) Foreigner
b) Woman
c) Minor

4) When a person buys shares of a company by filling up an application form, person becomes a member by ………………… .
a) Application and allotment of shares
b) Subscribing to Memorandum
c) Transmission of Shares

5) ……………………. means a person ceases being a member of the company.
a) Termination of Membership
b) Acquisition of membership
c) Subscription to Membership

6) A member has right to participate in General Meetings means, he has a right to …………..
a) receive dividends
b) receive notice and agenda of a meeting
c) to transfer his shares

Q.1 (B) Match the pairs.

Group A	Group B
a) Insane person	1) Transfer of shares by operation of law
b) Foreigner	2) Cannot be a member
c) Transmission of shares	3) Cessation of membership
d) Surrender of shares	4) To get copies of Auditor’s, Directors’ Report, etc.
e) Right of Members	5) Can be a Member
	6) To attend a board meeting
	7) Duties of member
	8) Surrendering all assets to the company
	9) Demand or claim money from a company
	10) Transfer of shares by order of Secretary

Answers.
a. 2) Cannot be a member
b. 5) Can be a member
c. 1) Transfer of shares by operation of law
d. 3) Cessation of membership
e. 4) To get copies of Auditor’s, Directors’ Reports, etc

Q.1 (C) Write a word or a term or phrase which can substitute each of the following statements.

1) End of membership of a person.
Answer: Termination of membership

2) A person whose name is entered in Register of Members.
Answer: Member

3) Book in which names of all members are entered.
Answer: Register of Members

4) Becoming a member of a company.
Answer: Acquisition of membership

5) The subscribers of this document are considered as Members of the company.
Answer: Memorandum of Association

Q.1 (D) State whether the following statements are True or False.

1) Buying shares is the most common way to become a Member of the company. (True)

2) Both, Individuals and body corporates can be members of the company. (True)

3) Legal competency to enter into contracts is one of the criteria to become a member of the company. (True)

4) Limited Liability Partnership cannot be a member of the company. (False)

5) Karta of HUF can be a member of company. (True)

6) Member of the company is conferred with several rights. (True)

7) Member is entitled to profits of the company when dividend is declared. (True)

8) Members of a company can attend general and Board meetings of the company. (False)

9) Right to appoint Director is given to Members. (True)

10) Minor can be a member of the company. (False)

Q.1 (E) Find the odd one.

1) Subscribing to Memorandum, Forfeiture of shares, Application and allotment of shares.

2) Death or insolvency of member, Application and allotment of shares, Surrender of shares.

Q.1 (F) Complete the sentences.

1) A person whose name is entered in the Register of Member of a company is called member

2) In case of death or insolvency of a member, he will cease to be a Member of a Company.

3) Members have a right to appoint and remove the Director.

Q.1 (G) Select the correct option from the bracket

Group A	Group B
1) Minor	Cannot become a member of a company
2) Co-operative society	Can become member of a company
3) Partnership firm	Can hold shares in the name of partners

Q.1 (H) Answer in one sentence.

1) Which individuals cannot become a member of a company?
Answer: Individuals like minors, insolvent persons, insane or lunatic person and foreigners cannot become a member of a company.

2) What is the common way of becoming a member of a company?
Answer: Buying shares of a company is the most common and easiest way of becoming a member of a company.

Q.1(I) Correct the underlined word and rewrite the following sentences.

1) A Minor can be a member of a company.
Answer: Karta of HUF

2) Partnership Firm can be a member of company.
Answer: Co-operative society

Q.2 Explain the following terms/concepts.

1) Member
Answer:
Member means a person whose name is entered in the Register of Members of Company and also includes a holder of equity shares whose name is entered as a beneficial owner in the records of the Depository.

Two pre-requisites for a person to become a member of the company are:
1) The agreement in writing to take shares of the company.
2) The Registration of the person so agreeing in Register of Members of the Company.

2) Transmission of shares
Answer:
a) Transfer of shares by the operation of law in the events of death, insolvency, and insanity of a member is called Transmission of shares.
b) The legal representative/ heir in case of death, Official receiver in case of insolvency, and administrator in case of insanity replace the concerned member.

3) Cessation of Membership
Answer:
The term “cessation” or “termination of membership” in a firm means the end of membership. The member’s name is deleted from the Register of Members after their membership ends. In reality, his relationship with the business ends.

4) Acquisition of Membership
Answer:
After meeting specific requirements for membership in an organization, anyone who is legally capable of entering into a contract may join or get membership in the organization.

Any of the following methods can be used to become a member of an organization. viz.
1) By subscribing to the Memorandum
2) By application and allotment of Shares
3) By holding Shares in Dematerialized Form
4) By Transfer
5) By Transmission of Shares
6) Nominee of One Person Company (OPC)
7) By Acquiescence

5) Eligibility of Membership
Answer:
a) The criteria for determining whether a person or an organization is capable of becoming a member of a company or not is specified in the Eligibility of Membership. As per Section 11 of the Indian Contract Act, of 1872, every person and organization which is competent to contract and enter into contracts in its own name can become a member of a company.

b) So, every individual who is of the age of majority, of sound mind, and is not declared insolvent can become a member of a company. Similarly, a company and limited liability partnership, having a separate legal entity, can become a member of the company whereas a partnership firm cannot

Solution of other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.3 Study the following case/situation and express your opinion.

1) Mrs. & Mr. A work in a Bank. They have a daughter named Ms. Z who is 11 years old.

a) Can Mrs. & Mr. A invest in shares of the company?
b) Can they buy shares in the name of their daughter Ms. Z?
c) Justify your answer in (a) & (b) in one sentence only.

Solution:
a) Yes, Mrs. & Mr. A can invest in shares of the company.
b) Yes, they can buy shares in the name of their daughter Ms. Z as they are guardians.
c) Mrs. & Mr. A are major, they are eligible to buy shares, and their daughter Ms. Z is 11 years old is a minor, and she is not eligible to buy shares.

2) M/s. ABC is a Partnership firm owned by Dr. A, Dr. B, and Dr. C. The doctors want to invest the profits of ABC in the shares of a company.

a) Can M/s ABC buy the shares of the company?
b) Can profits of M/s. ABC be invested in shares held in the names of Dr. A or Dr. B or Dr. C?
c) Are the doctors eligible to invest in shares of the company?

Solution:
(a) M/s ABC cannot buy the shares of the company because it is not a separate legal entity.
(b) Because a partnership business is allowed to own shares of a company in the individual names of partners, profits of M/s ABC partnership firm may be invested in the shares of a company in the names of Dr. A, Dr. B, or Dr. C individually.
(c) The doctors individually are eligible to invest their profits in the shares of the company.

3) ZEN Limited has some investible profits. Please guide Zen Limited with respect to the following?

a) Can ZEN Limited invest in its shares of itself?
b) Can ZEN Limited invest in the shares of TEN Limited?
c) Justify your answers in (a) & (b) in one sentence only.

Solution:
(a) ZEN Limited cannot invest in its shares of itself.
(b) ZEN Limited can invest in the shares of TEN Limited only if the Memorandum of Association allows it.
(c) ZEN Limited Company is a legal person, it is eligible to become a member of another company by purchasing shares of that company but cannot invest its investible profit in its own shares.

Q.4 Answer in brief.

1) State any four ways of acquiring membership of a company.

Answer: Refer to Question No 6 (3)

2) State any four ways of cessation of membership of a company.

Answer: Refer to Question No 6 (4)

3) State the rights of members with regard to participation in general meetings.

Answer:
The rights of members with regard to participation in the annual general meeting:

(1) All notices, agendas, and circulars for general meetings must be sent to members.
(2) They have the right to send a proxy on their behalf to attend any annual general meeting of the company.
(3) They have the freedom to speak out during meetings and share their thoughts on the topics at the discussion.
(4) They have the option to vote in person or by proxy on the resolution and proceedings.
(5) Members have the right to request a poll and cast their votes there.
(6) If the necessity arises, they have the right to request permission from the Company Law Board to hold an Extraordinary General Meeting of the Company in cases where doing so would be impractical.

Solution of other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.5 Justify the following statements.

1) Member and Shareholder are interchangeable terms.

Answer:
(1) In accordance with the Company Law’s procedure, the name of a person who has received shares (ie. a shareholder) must be recorded in the Register of Members. He, therefore, joins the business. Due to this, the phrases “member” and “shareholder” are often used to refer to the same individual. This is accurate for companies that are (i) limited by shares, (ii) limited by guarantee and having a share capital, and (iii) unlimited companies with a share capital, though.

(2) However, a member is not a shareholder in a company limited by guarantee without share capital and an unlimited corporation without share capital. As a result, a shareholder may or may not be a member. It’s possible that a subscriber to the memorandum of association didn’t receive any shares. He is a shareholder but not a member. A shareholder who has transferred his shares no longer qualifies as a shareholder but remains a member as long as the transfer has not yet been registered. In other words, a person can be a shareholder without also being a member, or vice versa.

2) A Foreigner can invest in shares of an Indian company.

Answer:
Foreigners (NRI) have the right to purchase shares and join a company, but this is governed by the Foreign Exchange Regulation Act, 1999 (FEMA 1999), which requires Reserve Bank of India approval prior to allotting any shares to foreigners. If at any point the foreigner turns into an enemy of India, his rights as a member of the company are suspended.

3) Insolvent person ceases to be the Member of the company.

Answer:
a) A person is said to be insolvent if they don’t have enough assets to cover their debts and obligations. b) Any contract or agreement that an insolvent individual makes with another person is forbidden. when a member of a firm is deemed insolvent by a court of law.
c) His shares are transferred to his creditor in favor of his official receiver or assignee as payment for his debts.
d) The membership of the insolvent member is terminated upon such a transfer of shares.
e) As a result, an insolvent individual is no longer a member of the company.

4) Co-operative Society is eligible to be the member of the company.

Answer:
a) A co-operative society is an organization created voluntarily by at least 10 members who share similar economic interests in order to do business, provide services to members, and make a profit that is sufficient for the organization’s survival and expansion.
b) Examples of cooperative societies include co-operative banks, co-operative housing societies, consumer cooperative stores, etc.
c) The cooperative societies Act of the relevant state mandates that it be registered.
d) In all Indian states, co-operative society registration is required.
e) A co-operative society can become a member of the firm by purchasing shares in its own name because it is a registered entity that is separate from the members who founded it.

5) Subscribers to Memorandum of Association are the first members of the company.

Answer:
a) The term “subscribe” refers to the act of indicating one’s consent or approval, particularly when one is signing the proposed memorandum of association for a newly registered company and thereby becoming one of its founding members.
b) Signatories to a firm’s Memorandum of Association who subscribe to it are regarded as willing to join the company as members.

c) Their names are listed as members in the Register of Members when the company is registered. Therefore, in this instance, neither an application nor the allocation of shares is required to join.
d) In the case of a public company, the subscriber to the memorandum of association must consist of a minimum of seven members, whereas the requirement is two for private companies and one for one-person businesses (OPCs). They are the company’s initial members.

6) Nominee of the member of OPC becomes its member on death of the member.

Answer:
a) One Person Company (OPC) is the name given to a business that only has one member, as defined by Section 2 (62) of the Companies Act, 2013.
b) A private company runs it. It is run, managed, and controlled by a single member or promoter who is only partially liable.

c) The promoter or member is obliged to record and register his nominee’s name in the one-person company’s Memorandum in accordance with the provisions provided by the Act, either at the time of the entity’s formation or at the time of joining as a member.
d) In the case that an OPC member passes away or develops a mental illness, the nominee whose name is listed in the Memorandum becomes exclusive ownership and management of OPC.

7) Members of company are entitled to several rights.

Answer:
a) Members of a firm have obligations and privileges because they are an essential component of the organization.
b) A member is entitled to view a company’s records and books. The Memorandum and Articles of Association are available for him to copy. He has the authority to choose the directors and auditors, as well as their compensation.

c) He has access to the register of members and holders of debentures.
d) He has the authority to make fundamental corporate decisions, such as changing the registered office of the company, raising the authorized capital, changing the company’s purpose, amending the articles of association, and winding up the business, among others.
e) He is entitled to receive the meeting’s notice and agenda. He can attend the Annual General Meeting personally or he can send his proxy to attend the meeting.

8) Members of company have some fundamental corporate decision-making rights.

Answer:
a) A company’s members have the sole authority to decide important corporate matters, such as changing the registered office clause in the memorandum of association, raising the authorized capital if it requires more money for modernization or development, and changing the object of the company, by adopting the necessary resolution at the general meeting of the company.
b) By adopting the necessary resolutions at the company’s general meetings, the members of the company have the authority to alter the company’s articles of association, as well as authorize acquisitions, mergers, and takeovers, the appointment of a sole-selling agent, and the winding-up of the company.

9) Transfer of shares results in termination of membership.

Answer:
a) A transfer of shares is when a shareholder gives ownership and possession of their shares to another person through a gift or sale. By merely delivery, the shares cannot be transferred.
b) A document known as an “Instrument of Transfer” must be registered with the corporation in order for shares to be transferred.
c) The Secretary removes the name of the seller (transferor) from the Register of Members once the company authorizes the transfer, terminating the membership of the shareholder who transferred the shares.

Q.6 Answer the following questions

1) Explain the circumstances when Member is not a shareholder and vice-versa.

Answer:

(A) Member without being a shareholder:

Although the terms ‘member’ and ‘shareholder’ are used interchangeably and mean the same person, in the following circumstances member is not a shareholder:

(1) Signatories to the Memorandum of Association:

Sometimes, a person who subscribes to the Memorandum of Association may not have been allotted any shares. In that case, until he is allotted any share, he is not called a shareholder of the company.

(2) Company Limited by Guarantee Amount:

In the case of a company limited by guarantee having no share capital or an unlimited company having no share capital, there will be only members but no shareholders.

(3) Membership by Acquiescence/Estoppel:

If a person’s name is improperly entered in the Register of Members and the exercises rights of membership such as attending company meetings, accepting dividends, etc. and does not take any step to remove his name from the Register of Members. In this case, he is a member but not a shareholder. So, he is estoppel from denying this fact so as to disown his liability as a member.

(4) Transfer of shares:

The shareholder who has transferred his shares to another person ceases to be a shareholder but continues to be a member till the transfer is registered and the name of the transferee is recorded in the Register of Members.

(5) Transmission of shares:

In the event of the death or lunacy of a member, his legal heir or representative automatically becomes the shareholder. He is entitled to have his name entered in the Register of Members. He can do so by making an application to the company supported by legal evidence of his title. The deceased person ceases to be a shareholder but continues to be a member of the company until the transmission of shares is completed (effected).

(6) On Insolvency of a Member:

Though shares of the insolvent member are taken possession by (held) by the Official Receiver or Assignee appointed by the court. An insolvent member continues to be a member but not a shareholder of the company.

(B) Shareholder without being a Member:

As explained above the transferee. i.e. buyer of the shares, legal heir representative in the case of death of a member. The official receiver or assignee in the case of insolvency of members are the shareholders but not the member of the company.

2) Explain the eligibility of membership of a company.

Answer:
Let us now know who can or cannot be a member of the company.

Criteria: Buying shares amounts to making a contract; so any entity viz. person/organization competent to make contracts can be a member of the company. This topic, therefore, has a context to the Provisions of the Contract Act too. Subject to the provisions of Companies Act, Memorandum, and Articles of company; any person ‘sui-juris’ can become a member of the company as follows:

I) Individuals:

a) Minor: A minor cannot be a member of the company himself. A guardian can enter into a share purchase transaction on behalf of a minor.

b) Insolvent: Since the beneficial rights of shareholding are held by Official Receiver/ Assignee, so the insolvent person stops being a member.

c) Insane/Lunatic: The Inability to enter into a contract renders the person ineligible for membership of a company.

d) Foreigner: Since a foreigner can enter into a contract; Foreigner can buy shares to be a Member of an Indian company, subject to provisions of FEMA 1999.

II) Organizations:

a) Company: A company is a legal person, who can be a Member of another company in its own name. It can become a member only if authorized by the Memorandum of Association. The company cannot invest in its own Shares.

b) Co-operative Society: Being a registered entity, it can be a Member of the company.

c) Limited Liability Partnership: Since it is a juristic person it can be a Member of the company.

d) Hindu Undivided Family: (HUF) The Act does not prohibit membership of HUF, but shares can be registered only in the name of its ‘Karta’.

e) Partnership Firm: The firm cannot be a member of the company as it is not a registered entity. But the firm can hold shares of a company in the individual names of Partners.

f) Trust: Registered Trust can become a shareholder in a company in its own name.

3) Explain different ways to acquire membership of the company briefly.

Answer:

Let us now learn how one can become a member of the company.

1) By subscribing to the Memorandum:

The subscribers to the Memorandum of a company are its members viz. seven (7) in the case of a public company, Two (2) in the case of a Private Company, and one (1) in the case of One Person Company. In fact, they are the first members of the company.

2) By application and allotment of Shares:

Any person who wishes to buy the company’s shares has to apply for the same and on acceptance of an application by the company, the person is allotted the shares and becomes a shareholder and thereby its Member on entering his/her name in the Register of Members.

3) By holding Shares in Dematerialized Form:

Any person who has shares in his name as a beneficial owner in the records of the Depository is a member of the company.

4) By Transfer:

Any person who buys shares of a company from an existing member becomes its registered member after the company accepts his transfer request.

5) By Transmission of Shares:

Transfer of shares by the operation of law in the events of death, insolvency, and insanity of a member is called Transmission of shares. The legal representative/ heir in case of death, the Official receiver in case of insolvency, and the administrator in case of insanity replace the concerned member.

6) Nominee of One Person Company (OPC):

In the case of OPC, the name of the nominee whose name is given in the Memorandum of OPC; becomes its sole owner in the event of the death of the member.

7) By Acquiescence:

If a person is wrongly entered in the Register of Members or holds himself out as a member or knowingly allows his name to remain on the Register of Members (without informing the company about the mistake and getting it rectified), is stopped from denying his membership and is liable as a member like in the event of winding up of a company. It is therefore called Membership by Principle of Estoppel.

4) Explain how membership of company terminates.

Answer:
The membership of a person may be terminated in any one of the following ways:

1) Transfer of shares:

The transfer of shares is affected by registering an instrument called ‘Instrument of Transfer’ with the company. When the company approves the transfer, the Secretary strikes off (cancels) the name of the seller (transferor) from the Register of Members and thus the membership of the shareholder is terminated.

2) Transmission of shares:

Transmission of shares refers to transfer or passing of property or titles in shares by the operation of law from a member to his legal representatives. Such an automatic transfer of shares takes place in the event of death or lunacy or insolvency of a shareholder. When the transmission of shares takes place, the membership of the original shareholder is terminated.

3) Buy-back offer by the company:

Sometimes, to achieve certain objectives (to, Instance reduction of share capital or number of shareholders) company repurchases or buys back its share from the market place. In that case, some members sell their shares to the company. After purchasing its own shares, the company cancels the names of the members from the register of members. This is one of the ways of termination of membership.

4) Forfeiture of shares:

When the company forfeits the ‘shares on account of non-payment of call money, the membership of the shareholder Whose shares are forfeited comes to an end.

5) Surrender of shares:

Surrender of shares means the voluntary return of shares by a shareholder to the company for cancelling them, due to his inability to pay the call dues. When the company accepts the surrender of partly paid-up shares, if permitted by its Articles, the membership of the shareholder is terminated.

6) Right of lien exercised by the company:

Lien means a claim on another’s property as security. When the company sells the shares of a shareholder under some provision in the Articles of Association (e.g., to enforce a lien over the shares held by the debtor shareholder), the membership of the shareholder is terminated.

7) Redemption of preference shares:

Redemption means repayment of the nominal value of the fully-paid up shares by the company to the shareholders, after the expiry of the stipulated period. When redeemable preference shares are redeemed to the shareholder by the company as per the terms of issue, the membership of that shareholder gets automatically cancelled.

8) Rescission by member:

The term ‘rescind’ means to repeal or to cancel. When the member rescinds the contract to take the shares on the ground of misrepresentation in the prospectus or on the ground of irregular allotment his membership stands cancelled with immediate effect.

9) Winding-up:

When a company Wounds up or exists no more due to the process of law, the membership of all the members stands terminated automatically.

5) Explain Rights of a Member of company.

Answer:
The following are the rights of members:

1) Right of accessing Books and Documents:

A member can get copies of Memorandum and Articles of Association, Auditor’s and Director’s Reports, Balance Sheets, and Profit and Loss Accounts; Also, a member can inspect Registers of Members, Debenture-holders, Charges, Investments, Minutes Book of all General Meetings, Proxies lodged for general meetings and all Returns filed by the company.

2) Right to make Fundamental Corporate Decisions:

Members hold exclusive powers to decide at meetings of members on matters like
a) Change of Registered office of the company
b) Increase in Authorized Capital
c) Change of objects of the company
d) Amend Articles of Association
e) Acquisitions, Mergers, and takeovers by the company
f) Appointing sole-selling agents
g) Winding up of the company.

3) Right to Participate in General Meetings:

Members have a right to receive the notice and agenda of all general meetings, attend them in person or appoint a proxy, speak and vote at meetings, demand and vote at a poll; demand to call Extra-ordinary General Meeting, etc.

4) Right to appoint and Remove a Director:

Members have a right to appoint and remove the Directors.

5) Right with respect to the company’s accounts and its audit:

Members approve the annual accounts at the Annual General Meeting; appoint auditors, decide their remuneration, and also have the right to remove the auditors.

6) Right to participate in the Profits of the company:

Member invests money in a company with the hope of getting returns on the investments. Therefore, Member has the right to approve the Dividend; and get the same within 30 days of its declaration at the Annual General Meeting.

7) Shareholding Rights:

These rights include the right to receive a share certificate, transfer of shares, to get Rights Issue and Bonus Issue/shares.

8) Right to receive surplus assets:

In the event of winding up of the company, Member is entitled to get shares of surplus assets of a company, if any, after the payment to all the other stakeholders.

9) Right to Class Action Suit:

The Act confers a right of class action suit to members against a company or its directors; in the event of any fraudulent, unlawful, or wrongful act or omission or misleading statements in the Audit Report. Any 100 members or those holding 10% of voting rights can apply to the Tribunal for redress. Members can demand an investigation into the affairs of the company. Also, they can file a petition to wind up the company.

Solution of other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

11th SP Textbook Solutions

Chapter Name	Solution Link
1) Secretary	Click Here
2) Joint Stock Company	Click Here
3) Formation of a company	Click Here
4) Documents related to formation of a company	Click Here
5) Members of a company	Click Here
6) Directors and Key Managerial personnel of a company	Click Here
7) Company Meetings – I	Click Here
8) Company Meetings – II	Click Here
9) Business Communication Skills of Secretary	Click Here
10) Correspondence with Directors	Click Here
11) Correspondence with Banks	Click Here
12) Correspondence with Statutory Authorities	Click Here

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