Mar 19, 2019

Membership Rights Of A Company | Blessing C. Madu

A Business can attract investors other than the business owner. A major way for the investor to participate in these businesses is to invest in the company by purchasing shares. Anyone who purchases shares is called a shareholder. Shareholders are very important persons in a company whether it is public or a private limited company. A shareholder is one who owns at least one share, attracting at least one vote in a company. A subscriber of shares is not regarded as a shareholder until shares are actually allotted to him. There is equally a very important person in a company. They are referred to as the Members of a company.

A member of a company is a person having constituent proprietary interest in the company and whose name has been entered in the Register of Members. The right of members is dependent upon the Companies and Allied Matters Act Cap C20 LFN 2004, Articles of Association and any agreement entered into by a member.

In the ordinary commercial language, the term “Member’’ denotes a person who holds shares in a company. Members and Shareholders are often  used interchangeably. It is pertinent to note that there is a difference between a shareholder and a member of a company although the difference is not too visible. A member is one who satisfies the provision of Section 79 of CAMA. This Section provides that a member of a company is one who agrees to become a member and whose name is entered in its register of members. The original subscribers to a company memorandum are considered to have agreed to become a member of a company. Thus, membership of a company is not synonymous to shareholding.

Differences between Members and Shareholders

The following are the differences between members and shareholders:

·        A shareholder will not become a member of a company until his name has been input in the register of members. A shareholder is a person who owns the shares of the company.

·        All shareholders whose names are entered in the register of members are the members. Thus, all members may not be shareholders.

·        Proof of shareholdership is by a share certificate; while proof of membership is by the register of members. Ponmile v Sparks Electrics Nig. Ltd (1986) 2 NWLR 519 AND Oilsfield Supply Center Ltd v. Johnson (1987) 2 NWLR 625.

For a person to be a member of a company, he must

·        Subscribe to shares, that is, he must be allotted at least a share in the capital of the company

·        Consent to be a member

·        Enter his name in the register of members before he enjoys membership benefits

If any of these conditions is not satisfied, the person shall not be a member under this Act.

Membership of a company can be acquired through any of the following ways;

·        By subscribing to the Memorandum before the registration of the company.  Section 79 of CAMA.

·        By applying for the shares offered by the company. Section 125 of CAMA.

·        By becoming a transferee of a share and being placed in the register of members. Section 151 of CAMA

·        By transmission of shares on succession to a deceased or bankrupt member and the consequent registration in the register of members. Section 155 of CAMA

·        By share qualification: the Articles may require a director of a company to take up shares in the company upon his appointment.

The entry in the Register of members is an indispensable condition for membership. Berliet Nigeria Co. Ltd v. Francis (1987) 2 NWLR 675.

Every Nigerian company acts through its member or shareholders either in its general meeting or through the Board (these are the main organs of a company). The importance of having a member and a shareholder or both cannot be over emphasized. A business owner cannot grow a company singlehandedly.  He is like a coach and the job of a coach is to hire extremely talented, hardworking and vision minded people to accomplish specific assignments. Every growing company needs people that will improve the standard of the company in all ramifications and execute various projects. An illustration is provided in the preceding paragraph.

Mr A and his family established a shoe factory. He is the sole owner of the company because he holds more shares in the company. Along the line, Mr B and C decide to purchase shares from the company. By doing so, they become part of the company in relation to the proportion of shares they hold. Mr A, who is the company’s founder, would give part ownership to Mr B and C. Mr B and C who are now shareholders in the company would play an important role in the financing, operations, governance and control aspects of the business. They would appoint directors to manage the operational activities of a company or in some cases, they could equally assume the role of directors. Company owners make decisions about significant matters such as changing the name of the business, appointing or removing directors, altering the articles of association and so on.

Thus, it can be said that a person can be a member and shareholder of the company at the same time. E.g, Mr B has 30 shares in AOL Limited, he was issued a share certificate and his name appears in the Register of members; A person can be a member but not a shareholder of the company e.g Mr B has 30 shares in AOL Limited, his name appears in the Register of members but he has sold all his shares to Mr C; A person can be a shareholder but not a member of the company eg. Mr B has 30 shares in AOL Limited bought from Mr B, He holds a share certificate but his name is not included in the Register of members. The main duty of a member who is also a shareholder is to pay the company the sum which remains outstanding for the agreed amount of the share(s) that have been issued.

Who can become a member of the company?

The Articles of Association of a company may impose certain restrictions or restrain some persons from acquiring membership in a company. In the absence of any express provision regarding the contractual capacity or legal personality of a person, the provisions of Section 80 of the CAMA will apply.  These include:

·        Minors: A minor is not a competent person to enter into a valid contract. As a result of this, he is disqualified to acquire membership. However, minors may be allotted shares, but it shall not be counted for the purpose of determining the legal minimum number of members of the company. Although, it is voidable at the instance of the minor when he attains maturity.

·        Unincorporated entities: A partnership firm cannot be issued shares because it is not a legal person. Although, such firm may hold shares in a company in the individual name of partners as joint shareholders.

·        An undischarged bankrupt

·        A person of unsound mind

·        A corporate body in liquidation

The members of a company enjoy several benefits. Their rights can be classified under two heads;

1.     Statutory Rights: these are the rights conferred upon members by the CAMA and they include the following;

·        Right to receive Dividend once declared by the board. Section 385 of CAMA

·        Right to transfer shares

·        Right to receive, upon request, certain statutory books and records of the company

·        Right to inspect statutory registers

·        Subject to Section 228 of CAMA, every shareholder shall have the right to attend company meeting and vote. Section 81 of CAMA.

·        Right to petition for the winding up of a company

·        Right to seek an investigation into the affairs of a company

·        Right to receive notice of meeting

·        Right to demand poll and appoint proxy in company meeting

·        Right to take up minority actions Heyting v. Dupont and Anor 1964 1 WLR 843

·        Right to requisition Extra-ordinary meeting

·        Right to be issued certificates within three months. Section 146 of CAMA.

2.     Documentary Rights: in addition to Statutory Rights, are certain rights that can be conferred upon the members by the constitution of the company like the Memorandum and Articles of Association.

Blessing C. Madu 

Blessing is a lawyer in the firm of Adedunmade Onibokun & Co., she has a passion for corporate law practice.

If you have any questions or comments on Membership rights or Shareholders Agreements, you can send a mail to the author or contact @legalnaija. Kindly note that this article is for educational purposes only and does not serve as legal advice.