Although Section 28 bears the words, definition of a member, the section does not define a member; rather it states the ways in which a person may become a member of a company as follows:-
(a) By subscribing to the memorandum of association of the company.
(b) By agreeing to become a member of the company.
Section 28(1) provides that the subscribers to the memorandum shall be deemed to have agreed to become members of the company and on its registration shall be entered as members in its register of members. When Section 28(1) is read in conjunction with Section 5(4) (b), it binds a subscriber of a company having a share capital to take at least one share, suggesting that a subscriber automatically becomes a shareholder on the company’s registration.
Section 28(2) provides that every other person who agrees to become a member of a company, and whose name is entered in the register of members, shall be a member of the company. This implies that a person who agrees to become a member of the company does not actually become one until his name is entered in the register of members. This section makes the placing of the name of a shareholder on the register a condition precedent to membership. “Registration is essential for membership”.
HOW TO BECOME A MEMBER
A person may become a member of the company in any of the following ways:-
(a) Membership by Subscription
Every subscriber to the memorandum is deemed to have agreed to become its members and on its registration must be put on the register of members.
(b) Membership by qualification shares (compliance with Section 182(2)
An agreement to become a member may occur if a person who has consented to be a director gives the statutory undertaking to take and pay for his qualification shares. Section 182(2) declares such a director to be in the same position as if he had signed the memorandum.
(c) Membership by Allotment
An allotte membership commences from the moment his name is entered in the company’s register of members.
(d) Membership by Transfer
A ‘transfer’ occurs if shares are bought from a company’s shareholder rather than from the company itself. The purchase of shares constitutes the agreement to become a member and the membership commences from the moment the transferee’s name is entered in the register of members.
(e) Membership by Transmission
A transmission is a legal process by which ownership of shares in a company changes automatically when the registered holder dies or becomes bankrupt.
Table A, Article 29 provides that “in the case of death of a member, the personal representatives of the deceased where he was a sole holder shall be the only person recognized by the company as having any title to his interest in the shares. If the personal representatives elects or decided to be registered himself as a holder of the shares, the election constitutes the agreement to be a member”.
Article 30 provides that a bankrupt member’s shares in a company will be transmitted to his trustee according to rules in bankruptcy law. If the trustee elects or decides to be registered as the holder of the shares, the election constitutes the agreement to be a member and the provision of Subsection 2 of Section 28 become applicable.
(f) Membership by Estoppels
A person who, without having agreed to be a company’s member, is aware that his name is wrongly entered in its register of members but takes no steps to have his name removed there from, may be estopped from denying his apparent membership to somebody who relied on it and extended credit to the company.
Cessation of Membership
A person’s membership of a company may cease or come to an end in either of the following ways: -
(a) When a person transfers his shares: -The transferor ceases to be a member as soon as the transferee is registered.
(b) When a person’s shares are validly forfeited by the company: -Table A, Article 33 provides that a member’s shares may be forfeited if the member fails to pay any call. Article 37 provides that a person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares. He therefore ceases to be a member if all of the shares previously held by him are forfeited.
(c) When a person makes a valid surrender of his shares of the company:- A person’s membership will come to an end if he surrenders all his shares to the company with the approval of the directors. If the surrender is void, the membership does not come to an end even if the member’s name is removed from the register.
(d) When a person dies, his ownership of a company’s shares will come to an automatic end by virtue of the provision of the law of succession.
Table A, Article 24 provides that, in case of death of a member the personal representatives of the deceased shall be the only persons recognized by the company as having any title to his interest in the shares.
(e) When a person is declared bankrupt, his ownership of company’s shares will come to an end under the provisions of the Bankruptcy Act, which vest a bankrupt property in his trustee.
(f) Redemption of redeemable preference shares: - If a member’s entire holding consists exclusively of redeemable preference shares and all these shares are redeemed by the company under Section 60 of the Act, he will cease to be a member from the date on which his name is removed from the register of members.
(g) When a company sells shares under its lien: - A company, like an unpaid seller under the sale of Goods Act, has a right of lien on its shares as security for the balance of their price.
Table A, Article 11 gives the company “a first and paramount lien” on every unpaid share. If the company sells all the shares held by a member, the membership will come to an end from the moment the buyer’s name is entered in the register of the company.
Article 12, gives the company power to sell “any shares on which the company has a lien”.
(h) Repudiation by an Infant: - An infant member has a common law right to repudiate his membership of a company if there has been a total failure of consideration because the shares have become worthless.
Case Law: Steinberg vs. Scala (Leeds) Ltd.
Miss Steinberg, an infant, purchased 500 £ 1 shares from the defendant company. She paid Sh. 10 on each share and being unable to meet some calls, repudiated the contract while she was still a minor and claimed: -
(a) Rectification of the register of members to remove her name there from and thereby relieve her from liability on future calls.
(b) Recovery of the money already paid.
It was held that: -
(a) She was entitled to rescind and so was not liable for future calls, but
(b) She was not entitled to recover the money already paid because there had not been a total failure of consideration. She had got the thing for which the money was paid, namely the shares. Although she had not yet received any dividends on the shares, the shares had some value.
(i) Liquidation: - Company liquidation terminates membership of all former members from the moment it becomes a member. The members technically become “contributories”.
Who may be a Member?
The general rule is that any person who is competent to contract may be a member. A contract to purchase shares is like any other contract and both the contracting parties must be competent to enter into a contract.
The membership rights of some categories of persons are as follows: -
An infant is any person who has not attained the age of 18 years. A minor has a common law right to enter into a contract to buy shares in a company, and thereby become a member of the company. The contract is however avoidable at his option, and he may avoid it at any time during his infancy or within a reasonable time after attaining the age of 18 years.
Although the infant has a right to repudiate the contract, he would only be entitled to get back the amount already paid if there has been a total failure of consideration because the shares have become valueless.
Case Law: Palaniappa vs. Official Liquidator (1942)
A father as a guardian of his minor daughter applied for the shares of a company. Shares were allotted to the daughter describing her as a minor. The company went into liquidation and the father was placed under the list of contributories.
It was held that neither the father nor the minor are liable as contributories.
A company’s articles may, however, restrict membership of the company to adults only in which case an infant would not become a member of the company.
(b) A corporation
A corporation, whether registered or not, can become member of another company, if so authorized by its articles. But a company cannot be a member of itself. A company cannot purchase its own shares because it involves reduction of capital, which is not permissible under Section 29(1).
(c) Personal Representatives
On member’s death, his personal representatives would be entitled to be registered as a member of the company unless the company’s articles provide otherwise.
REGISTER OF MEMBERS
Section 112(1) requires every company to keep a register of its members and prescribes the contents of the register as follows: -
(i) The names and postal address of the members.
(ii) A statement of the shares held by each member.
(iii) The amount paid or agreed to be considered as paid on the shares of each member.
(iv) The date at which each person was entered in the register as a member.
(v) The date at which any person ceased to be a member.
Section 122(2) requires the register of members to be kept at the registered office of the company.
Section 115(1) provides that the register of members shall be open during business hours to the inspection of any member without charge, and of any other person on payment of a fee, not exceeding Sh. 2 for each inspection as the company may prescribe.
Section 117 permits a company, on giving a notice by advertisement in some newspaper circulating in Kenya to close the register of the members for any time or times not exceeding in the whole 30 days in each year. The purpose is to keep the register static so that members’ holdings may be extracted as at a particular date for the purpose of computing dividends.