Company Law Essay Help : Shares and Membership of a Company

Cases referred to in this sectionEbrahimi v Westbourne Galleries Ltd [1973] AC 360, [1972] 2 All ER 492, HL
Johnson v Lyttle's Iron Agency (1877) 5 ChD 687, CA

A member of a company is someone who has agreed to be a member and whose name has been entered onto the register of members (Section 22 Companies Act 1985). This includes subscribers to the memorandum who have agreed to be members on incorporation, allottees who show their agreement on applying for shares, transferees of shares who show their agreement to be members by presenting the transfer form, and Legal representatives of a deceased member or trustees in bankruptcy of a bankrupt member who signify their agreement by applying to be registered as holders of the shares (this is known as transmission).

Each company should keep a register of members which records the name and address of each member, the class of share he holds (e.g. ordinary, preference etc), the number of shares held, the date on which he became a member and the date on which he ceased to be a member. Entry into the register is prima facie evidence of membeship. If the number of members of a private company becomes only 1, a statement to this effect and the date on which this became the case must be expressly entered into the register and similarly, it must be expressly recorded if the company then becomes more than a one member company (Section.352A Companies Act 1985). Entries must be kept for 20 years following cessation of membership.

A share is an item of intangible property (a chose in action) which represents the interest of a shareholder in the company (in the share capital). The rights attached to ownership of a share include:

• The rights to share in a profit (i.e. dividend)
• The right to vote
• The right to share in any surplus assets available for distribution when the company is wound up
• The right to enjoy the benefits of the Section 14 Contract

The articles of the company constitute a contract between the company and a member in respect of his rights and liabilities as a shareholder (although a member may have legitimate expectations and interests not set out in the articles which the courts will be prepared to recognise in some circumstances: Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, [1972] 2 All ER 492, HL); and a company may sue a member and a member may sue a company to enforce and restrain breaches of the regulations contained in the articles dealing with such matters (Johnson v Lyttle's Iron Agency (1877) 5 ChD 687, CA).

The purpose of the articles is to define the position of the shareholder as a shareholder, not to bind him in his capacity as an individual.

Any contract, so far as it relates to the constitution of the company, or the rights or obligations of its corporators or members, is exempt from the prohibitions on exclusion of liability imposed by the Unfair Contract Terms Act 1977.

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