Table of Contents
- Introduction
- Difference Between Shareholders and Members
- How to Become a Member Under the Companies Act, 2017
- Case Study: Fraudulent Change of Company Name
- Court’s Decision
- Key Takeaways
1. Introduction
In simple terms, a company is a separate legal entity, but its members form and run it. If you are a shareholder in a company, you are also a member. While people often use the terms “shareholder” and “member” interchangeably, you need to understand some key differences.
2. Difference Between Shareholders and Members
2.1 Transfer of Shares
To become a member, the company must officially register the transfer of shares in your name. If you transfer your shares to someone else, you remain a member until the company updates its records to reflect the change.
2.2 Membership in Specific Companies
- In a company limited by guarantee, members are responsible for contributing to the company’s debts under specific terms in the Memorandum of Association.
- In an unlimited company, members contribute funds based on their share of ownership if the company needs to pay off debts when it is shut down.
So, the type of company you are dealing with determines how membership works.
3. How to Become a Member Under the Companies Act, 2017
To officially become a member of a company, you need to follow these steps outlined in the Companies Act, 2017:
- Subscribe to the Memorandum of Association when forming the company.
- Receive an allotment of shares from the company.
- Register your name in the company’s records as a member.
If you have not completed these steps, you are not legally considered a member of the company.
4. Case Study: Fraudulent Change of Company Name
A case involving family members of a firm recently surfaced. The company’s name was changed from “Messrs Hibake” to “Tehzeb Bakers” without the petitioners’ permission, they said. Additionally, they charged the respondents with poor business management.
4.1 Allegations by the Petitioners
The petitioners made the following claims:
- The company name was changed fraudulently.
- The respondents were running the company unlawfully.
4.2 Court’s Findings
- The petitioners could not prove that they were members of the company.
- They had not subscribed to the Memorandum or received shares, and their names were not in the company’s records.
- SECP records confirmed that the petitioners were not listed as shareholders or members.
- They did not take action in time to challenge the name change or ask for a correction in the records.
- Documents provided, like partnership agreements, did not show any illegal activity or fraud.
Because of this, the court dismissed their claims.
5. Court’s Decision
The court ruled against the petitioners under Section 286 of the Companies Act, 2017. The petitioners failed to prove they were members, and their delayed action weakened their case.
6. Key Takeaways
- Follow the proper steps to become a member of a company under Sections 118 and 119 of the Companies Act, 2017.
- Take action promptly if you believe fraud or unlawful conduct is happening within a company.
- Ensure your name is properly registered in the company’s records to secure your rights as a shareholder or member.
This case teaches us the importance of understanding and following legal processes to avoid delays and disputes in corporate matters.
If you have any questions about becoming a member of a company or handling legal issues related to corporate affairs, feel free to contact Advocate Muhammad Amin in Peshawar. As a highly experienced lawyer, Muhammad Amin provides expert legal services to help you navigate complex corporate matters.