Membership of A Company.

How It Can Be Acquired and

Terminated?
Membership of a company is defined under Section 47 of the Companies Act 2012.
Which is as follows;
1. The subscribers to the memorandum of a company shall be taken to have agreed
to become members of the company, and on its registration shall be entered as
members in its register of members.
2. A person who agrees to become a member of a company, and whose name is
entered in its register of members shall be a member of the company
Whereas, Smith and Keenan’s Company Law1 states that, there are several ways in
which membership of a company may be acquired. These are as follows:
1. By subscribing the memorandum. When the company is registered, the persons
who subscribed the memorandum automatically become members on subscription,
and must be put on the register of members on registration of the company
2. By making an application on the basis of listing particulars or a prospectus for an
allotment of shares.
3. By taking a transfer from an existing member.
4. By succeeding to shares on the death or bankruptcy of a member.
The persons mentioned in (2), (3) and (4) above do not actually become members
until their names are entered in the register of members.

Capacity for one to be a Member of a Company.

The general rule of capacity for one to be a member is governed by the general law of
contract, this therefore means that anyone who has the capacity to make a contract
may become a member of a company. However, if the company goes ahead and
register anyone who does not have capacity to contract then that action is ultra vires
and the directors of the company can be made accountable.
The position as regards company membership appears as follows;
1. A minor may be a member of a company unless the articles otherwise provide.
2. Registration of a minor may give rise to difficulties in the case of partly paid
shares or unlimited companies, because a minor can repudiate the contract with
the company at any time during minority and for a reasonable time thereafter.
3. If he does repudiate, he cannot recover the money he has paid up to the time of
repudiation if the shares have ever had any value

1
Charles W. & Stuart W. Smith and Keenan’s Company Law( Pearson Education Limited) Fourteenth edition
published 2009.Chapter 2 Pg.238
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The best case to place this into perspective is the case of Steinberg v Scala (Leeds)
Ltd2 whose facts are; the claimant, Miss Steinberg, purchased shares in the defendant
company and paid certain sums of money on application, on allotment and on one
call. Being unable to meet future calls, she repudiated the contract whilst still a
minor and claimed:
1. Rectification of the register of members to remove her name therefrom, thus
relieving her from liability on future calls; and
2. The recovery of the money already paid. The company agreed to rectify the
register and issue was joined on the claim to recover the money paid.
Court Held that; the claim under (2) above failed because there had not been total
failure of consideration. The shares had some value and gave some rights even
though the claimant had not received any dividends and the shares had always stood
at a discount on the market.
A key consideration on registration of members of a company is that the liabilities of
members are limited to the amount of shares held by them in the case of a company
having share capital while in the case of a company limited by guarantee the liability
of members is limited to the amount of guarantee given by them. But, in the case of
an unlimited company the members have to contribute from his personal assets to pay
the debts.
The members cannot take part in the management of the company, i.e. the
management of the company is looked after by the Board of Directors. Although the
right to appoint and remove the directors is in the hands of members.

Liability of Members of a holding Company

By definition, a holding company is a company that doesn’t have any operations,
activities, or other active business itself. Instead, the holding company owns assets.
These assets can be shares of stock in other corporations (Companies), limited
liability companies, limited partnerships, private equity funds, hedge funds, public
stocks, bonds, real estate, song rights, brand names, patents, trademarks, copyrights
—virtually anything that has value.
Therefore, Section 48 of the Companies Act 2012 is to the effect that; except as
otherwise provided in this section, a body corporate cannot be a member of a
company, which is its holding company and any allotment, or transfer of shares in a
company to its subsidiary is void.
And subsection (2) states that nothing in this section shall apply where the subsidiary
is concerned as personal representative, or where it is concerned as trustee, unless
the holding company or a subsidiary of it is beneficially interested under the trust

2
Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452
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and is not so interested only by way of security for the purposes of a transaction
entered into by it in the ordinary course of business which includes the lending of
money.
And under Subsection (3) provides that this section shall not prevent a subsidiary,
which is, at the commencement of this Act, a member of its holding company, from
continuing to be a member but, subject to subsection (2), the subsidiary shall have
no right to vote at meetings of the holding company.
Whereas Subsection (4) states that Subject to subsection (2), subsections (1) and (3)
shall apply in relation to a nominee for a body corporate which is a subsidiary, as if
references in subsections (1) and (3) to such a body corporate include references to
its nominee.
And lastly, Subsection (5) states that In relation to a company limited by guarantee
or unlimited which is a holding company, the reference in this section to shares,
whether or not the company has a share capital, shall be construed as including a
reference to the interest of its members as such, whatever the form of that interest.

What is the procedure and effects of registering members

of a company.
Under Section 119 of the Companies Act 2012 provides that A company shall keep a
register of its members and enter in the register the following particulars
(a) The names and postal addresses of the members and in the case of a company
having a share capital a statement of shares held by each member, distinguishing
each share by its number if the share has a number and of the amount paid or agreed
to be considered as paid on the shares of each member;
(b) The date on which each person was entered in the register as a member; and
(c) The date on which any person ceased to be a member, except that where the
company has converted any of its shares into stock the register shall show the
amount and class of stock held by each member instead of the amount of shares and
the particulars relating to shares specified in paragraph (a).
Thereafter under Subsection 2 the register of the names shall be kept at the
registered office of the company, except that—
(a) If the work of making it up is done at another office of the company, it may be
kept at that other office; and
(b) If the company arranges with some other person for the making up of a register
to be understood on behalf of the company by that other person, it may be kept at

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the office of that person at which the work is done but it shall not be kept at a
place outside Uganda
Whereas Subsection 3 states that, a company shall send notice to the registrar of the
place where its register of members is kept and of any change of place.
And under Subsection 4 states that, A company shall send notice under this section
where the register has, at all times since it came into existence or in the case of a
register in existence at the commencement of this Act, at all times since the
commencement of this Act been kept at the registered office of the company.
However, as stated under Subsection 5, In the case of a company, which does not
have a share capital but has more than one class of members, there shall be entered
in the register, with the names and addresses of the members, the class to which
each member belongs.
And also under Subsection 6, where a company defaults in complying with subsection
(1) or makes default for fourteen days in complying with subsection (5), the
company and every officer of the company who is in default is liable to a daily
default fine of twenty five currency points
Case in point is Burns v Siemens Bros Dynamo Works Ltd3 whose facts state that, the
claimants, Burns and Hambro, were the joint owners of shares in the defendant
company. The shares were entered in the company’s register in the joint names of
Burns and Hambro. The company’s articles provided that, where there were joint
holders, the person whose name appeared first in the register of members, and no
other, should be entitled to vote in respect of the shares. The result was, of course,
that Hambro had no voting rights. This action was brought by Burns and Hambro
asking that the register be rectified so as to show roughly half of the joint
shareholding in the name of each joint holder.
It was held by the High Court that the court had jurisdiction to make such an order,
and the company was required to rectify the register, showing shares numbered 1 to
10,000 in the names of Burns and Hambro, and shares numbered 10,001 to 19,993 in
the names of Hambro and Burns

A company that constitutes more than 50 members.

Under Section 120 of the Companies Act 2012 which is to the effect that,
A company which has more than fifty members shall, unless the register of members
is in such a form as to constitute in itself an index, keep an index of the names of
the members of the company and shall, within fourteen days after the date on which

3
Burns v Siemens Bros Dynamo Works Ltd [1919] 1 Ch 225
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any alteration is made in the register if members, make any necessary alteration in
the index.
(2) The index, which may be in the form of a card index shall, in respect of each
member contain a sufficient indication to enable the account of that member in the
register to be readily found.

Who has the right to inspect the Companies Register?

According to Section 122 of the Companies Act 2012, it states clearly that,
(1) Except when the register of members is closed under this Act, the register and
index of the names, of the members of a company shall, during business hours be
open to inspection of any member without charge and of any other person on
payment of one currency point or such less sum as the company may prescribe, for
each inspection.
(2) The company may in a general meeting impose reasonable restrictions on
inspection under subsection(1) but the restrictions shall not be such as to reduce the
period of inspection to less than two hours in each day.
(3) A member or other person may require a copy of the register or of any part of it,
on payment of one currency point or such less sum as the company may prescribe.
(4) The company shall cause any copy required under subsection (3) by any person to
be sent to that person within a period of fourteen days commencing on the day next
after the day on which the requirement is received by the company.
(5) Where an inspection required under this section is refused or if a copy required
under this section is not sent within the period specified in subsection (4), the
company and every officer of the company who is in default is liable in respect of
each offence to a fine not exceeding twenty five currency points and further to a
default fine of five currency points in respect of each day of which the default
continues.
(6) In the case of a refusal or default referred to in subsection (5), the court may, by
order compel an immediate inspection of the register and index or direct that the
copies required shall be sent to the person requiring them
If a company makes an application to the court and the court is satisfied that the
inspection or copy is not sought for a proper purposes, then it shall direct the
company not to comply with the request and it may order that the company’s costs
on the application be paid in whole or in part by the person who made the request.
Indeed, Section 123 of the Companies Act 2012 makes it an offence for a person to
knowingly or recklessly to make in a request under Section 119(2)(b) a statement

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that is misleading, false or deceptive in a material particular. This gives the court a
discretion and it may refuse to make an order, e.g. in the case of a pro-hunting
charity which felt that a disclosure of members might be detrimental. A compromise
might be achieved by the company offering to act as a post-box for confidential
communication to and from members as seen in the case of P v F Ltd4. Where the
Court of Appeal accepted a similar post box undertaking from a company and refused
to make an order
for inspection whereas in Pelling v Families Need Fathers Ltd 5 where the defendant
company was a charity with the object of helping parents to stay in touch with their
children after separation or divorce.

NB
It is worth noting that the right of inspection terminates on the commencement of
winding-up as seen in Re Kent Coalfields Syndicate [1898] 1 QB 754. Any rights then
existing are derived from the insolvency rules, and not from the Act, and may require
an order of court.

The powers of Court during Registration.

Under Section 125 of the Companies Act 2012 states that;
(1) Where—
(a) The name of a person is without sufficient cause entered in or omitted from the
register of members of a company; or
(b) Default is made or unnecessary delay takes place in entering on the register the
fact of any person having ceased to be a member, the person aggrieved or any
member of the company or the company may apply to the court for rectification of
the register.
Whereas Subsection 2 states that, where an application is made under this section,
the court may either refuse the application or may order rectification of the register
and payment by the company of any damages sustained by any party aggrieved.
And under Subsection 3 provides that, on an application under this section the court
may decide any question relating to the title of any person who is party to the
application to have his or her name entered in or omitted from the register whether
the question arises between members or alleged members on the one hand and the
company on the other hand and generally may be decided for rectification of the
register.

4
P v F Ltd [2001] NLJR 284
5
Pelling v Families Need Fathers Ltd [2003] [2002] 1 All ER 440
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And, Section 125 (4) is to the effect that, In the case of a company required by this
Act to send a list of its members to the registrar, the court, when making an order
for rectification of the register shall by its order direct notice of the
rectification to be given to the registrar.

It is worth noting that Trusts are not to be entered on

the register.
As provided for under Section 126 of the Companies Act 2012, A notice of any trust,
expressed, implied or constructive shall not be entered on the register or be
receivable by the registrar.
Case in point is Simpson v Molson’s Bank6 whose facts are that, The executors of the
Hon John Molson were given 10 years by his will to wind up his estate. After the
expiration of that time, and in breach of the terms of the will, they made a transfer
of certain shares in the bank. The claimants, who had an interest in the residuary
estate of John Molson, brought this action claiming damages from the bank because it
had registered a transfer knowing that transfer to be in breach of trust, such
knowledge being derived from the fact that a copy of the will was deposited at the
bank, and that William Molson, the testator’s brother, was one of the executors who
signed the transfer and was also the president of the bank.
Court Held that the bank was not liable for registering the transfer although it had
notice that it was in breach of trust, because s 36 of the Act of Parliament
incorporating the bank provided specifically that it should not take notice of any
trust over its shares.

Summarily one can become a member through the following

ways;
1. If a person subscribes the memorandum of association of a company, he becomes
a member by signing it.
2. If a person becomes the beneficial owner of shares whose name is registered in
the record of the depository, then also he becomes a member.
3. If a person gets shares by way of transfer and the transfer is recorded by the
company, along with the entry of the name of the transferee in the register of
members.
4. If a person gets shares by way of transmission and the transmission is recorded by
the company along with the entry of the name in the register of members.

6
Simpson v Molson’s Bank [1895] AC 270
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5. If a person agrees to take the qualification shares of the company and pay for it
then also he becomes a member of the company.

How do you terminate one’s membership in a company?

Termination of membership is complete when the name of a former member is
removed from the register. This may occur by:
(a) Transfer of the shares to a purchaser or by way of gift (subject to liability to be
put on the list of members for one year if the company goes into liquidation
(b) Forfeiture, surrender, or a sale by the company under its lien;
(c) Redemption or purchase of shares by the company;
(d) The registration of a trustee in bankruptcy, or by his disclaimer of the shares;
(e) Death of the member;
(f) rescission of the contract to take the shares arising out of fraud or
misrepresentation in the prospectus, or by reason of irregular allotment;
(g) dissolution of the company by winding-up or amalgamation or reconstruction under
Insolvency Act 2011 and Section 236 of The Companies Act 2012,
(h) compulsory acquisition (as explained under Chapter 24 in Smith and Keenan’s
Company Law7);
(i) under the provisions of the company’s constitution, e.g. expulsion under the
articles for competing with the company ( as seen in the case of Sidebottom v
Kershaw Leese, 1920).
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7
Supra 1
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