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Cessation termination of Membership (shareholder) of company

Cessation of membership of a company means a shareholder of a company ceasing to be entitled to all of its rights as a shareholder of that company. He is no longer considered as a shareholder of that company under the law.

Please note once a person officially becomes a shareholder of a company, he is called a "member" of that company.

Once a person ceases to be a shareholder of a company his name is then removed from the register of members of the company in case he is holding shares physically through share certificates and in case of demat holding, his name is removed from the list of beneficial owner in the records of a depository (Depositories in India i.e. NSDL/ CDSL).

Under different circumstances this cessation or termination of membership may happen, some of them are mentioned hereunder:

1. Buy-back of shares under Section 68 of the Companies Act, 2013, when the company purchases back the shares from its shareholders;

2. Transfer of shares by the shareholder to another person with or without consideration;

3. When a member dies and his nominee/heir/successor replaces him in the register of members of the company;

4. If a member becomes insolvent and his creditor(s) replaces him in the register of members of the company;

5. Non-payment of the allotment/call money on the shares held by a member resulting in forfeiture of shares by a company;

6. By the order of the Tribunal under Section 242 of the Companies Act, 2013 directing the transfer of shares of a member to another member or the company;

7. If the company exercises lien on shares of a member in accordance with the articles of association;

8. In the case of winding up/dissolution of the company or strike off of the name of the company.


cessation of membership in a company

Comments

  1. Yashika Taluja10 August, 2018

    A person of unsound mind as declared by a court - gets disqualified to be a director. I guess that "unsound mind" condition doesn't apply here. A shareholder member with unsound mind can continue to be a shareholder, his membership does not cease for this reason.

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    1. As per sec 11 of indian contract act a person should be of sound mind to enter into contract. But as per your case a person becomes of unsound mind after becoming a member so the contract with a person of unsound mind will be voidable.As per the provisions of companies act and it was held in a celebrated case of palaniappa v official liquidator cour held that company has to refund the money to share holder and strikes off the name of person who has become of unsound mind

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