By definition, the term “Membership” in relation to a company means, one who has agreed to become the member of the company by entering his name into the ‘Register of Members’. Every person who has agreed in writing to become a part of the company and also holds shares of the company is considered the ‘Member of the Company’ and is said to hold membership in a company. The name of the member of the company is entered as ‘Beneficial owner in the record of depository’.
Membership of a company is not synonymous with shareholding. For example, a member should be able to vote at the general meetings of a company, but not all shareholders have an inherent right to vote. A preference shareholder, for example, has no inherent right to vote at a general meeting except when the shares are participating preference shares, and permitted by the articles of association of a particular company.
Conditions for Membership in a Company
A member, therefore, is a person who in line with Section 79 of CAMA, LEN 2004, satisfies concurrently all of the following:
- Subscription to shares: A member must have been allotted at least a share (ordinary share) in the capital of the company.
- Consent to be a member: Consent to be a member may be established in various ways; signing as a subscriber to the memorandum of association, execution of a transfer form, application for shares in a public offer, or private placement.
- Entry in the register of members: Entry in the register of members is the satisfying condition for being a member. The ability to enjoy most of the benefits of members, including receipt of dividends, receipt of notice of meetings and other rights of a member derive from entry in the register of members.
Types of Shareholders in a Company
(i) Corporate members: These are registered companies that invest in the shares of another company. Such members exercise members’ rights through corporate representatives to whom is accorded the full rights of members. A corporate representative must be appointed under the seal of the appointing company.
(ii) Institutional members: Instituters to institutions, funds, and insurance companies that hold a large numb of shares in companies quoted on the Stock Exchange. The rationale behind the huge investment is the need to grow investment portfolios while keeping the objectives of clients and beneficiaries in focus. For example, a pension fund needs to invest contributions to be able to meet the fund’s obligations as and when they fall due in the future.
As a result of this, institutional members are often believed to have more influence over the private investors in quoted companies. For example, they more often than not acquire shares enough to nominate a director on the board of directors. They are often able to exercise some dominant control and choose strategic directions for companies. More often, they are required to invest a percentage of their revenue in the capital market.
(iii) Nominee shareholders: Contrary to the provision of Section 86 of CAMA, shares are still being held in a way that conceals the true owners. The most common way of doing so is to hold such shares under a bare trust called nomineeship. Under this holding, the true owner is not expected to be known to the company. Legally, the company is entitled to feign ignorance and deal with the person whose name appears on the register of members as the true legal owner of the shares.
(iv) Joint shareholders: Unless prohibited by a company’s articles of association, more than one person (up is four persons) may jointly hold shares in a company. When this happens the following shall apply:
Joint shareholders are entitled only to one share certificate.
- Notice of the meeting shall be sent to the joint holder whose name appears first on the list.
- The signatures of all the joint holders are required to validate any transfer or any other transaction in the shares.
- Joint holders are jointly and severally liable to pay outstanding calls.
- Joint shareholding may be split with the joint request of all the joint holders.
- Dividend warrants, just like the notice of meeting, are sent to the senior member. (g The vote (on a show of hands) of the senior member is taken to the exclusion of other joint holders.
Capacity of Membership in a Company
Some categories of people are prohibited from becoming members of a company for reasons bordering on contractual capacity and legal personality. These include:
For lack of contractual capacity, a person under the age of 18 may not become a shareholder. While it is believed that the contract of allotment would be voidable at the instance of the minor, some hold the position that it is to allot shares to minors. The point to note is that the minor will not be able to enforce the contract of allotment against the company; neither can the company do the same.
Therefore, a company cannot enforce the payment of any arrears of calls, and neither can the minor prevent the company from forfeiting the shares. Where a minor holds shares in a company, the minor shall not be counted in determining the legal minimum number of members of the company (Section 80(2) of CAMA).
- Unincorporated entities: A partnership and similar entities are, for lack of legal personality prohibited from registering shares in the firm’s name. The practical way of dealing with the situation, therefore, is for the partners to have the shares in their respective (or joint) names under a bare trust for the rest of the partners.
- An undischarged bankrupt.
- A person of unsound mind.
- A corporate body in liquidation.
Rights of a Member
The rights of members in a company are basically proprietary. What is meant by this is that the rights of members can be likened to the right one has in a property and the process of protecting such rights is in some instances the same. It is, therefore, possible for a shareholder to sue to recover any loss arising from an infringement of his right in the company. These rights include:
- The right to attend, speak and vote at meetings of the company (Section 81 of CAMA).
- The right to receive, upon request, certain statutory books and records of the company, for example, audited financial statements, etc.
- The right to inspect statutory registers.
- The right to inspect minutes of general meetings and to request copies.
- Subject to the holding of requisite percentage, the right to call for winding up of the company.
- The right to receive a dividend when recommended by the directors and approved by the general meeting.
Duties and liabilities of a Member
Holding shares in a company is in law tantamount to having a proprietary interest. As such, it confers some rights and also imposes some duties and liabilities on shareholders. Some of these duties and liabilities are as follows:
- There is a duty, in the case of public companies to disclose within fourteen days any substantial holding in shares (Section 95 of CAMA). A person who directly or indirectly holds shares in a company entitling him to exercise a minimum of 10 percent unrestricted voting rights is deemed to have a substantial shareholding in the company (Section 95(2)).
- Duty to pay any call when made on any arrears of payment.
- Duty to obey the provisions of the memorandum and articles of association when relating to the company.
- In the event of a company being wound up, every present or past member sho be liable to contribute to the assets of the company up to an amount sufficient for payment of its debts and liabilities (Section 92(4) of CAMA). This provision however subject to the provision stated in Section 92 (4) (a) (b) (c) of CAMA.
- Membership of audit committee: By Section 359 of CAMA, shareholders have the right to nominate a maximum of three members to join three other members of the board on the audit committees of public companies.
- Demand for pre-AGM cocktail: The rationale behind having a meeting with selected shareholders before the annual general meeting is neither legal nor equitably justifiable. All members are to be treated equally – given equal chances to contribute to discussions at the annual general meeting.
- Demands through shareholders’ associations: Participation of members through various associations has assumed increasing dimensions in recent times. An issue for the stakeholders is the statutory basis for the recognition of these associations.