Company Law and Practice · Members and Shareholders

Rights and Liabilities of Members of a Company

Updated 11 October 2026 · Fact-checked

A member is a person whose name is in the register of members. Members have rights such as voting, dividend, inspection, information and transfer of shares. Their liability is limited to the unpaid amount on shares, or the guarantee amount. Membership ends by transfer, forfeiture, surrender, death, insolvency, winding up or similar events.

Understand Rights and Liabilities of Members

A company is owned by its members. A member is a person who agrees to become a member and whose name is entered in the register of members. Your rights and duties as a member come from the Companies Act, the memorandum, the articles and the terms of issue of your shares.

Rights fall into two groups. Statutory rights come from the Act. They include the right to receive notice of general meetings, to attend and vote, to appoint a proxy, to receive the annual financial statements, to inspect registers and minutes of general meetings, and to get copies of the memorandum and articles. Other rights come from the articles or the terms of the shares. The right to transfer shares and to receive dividend, once declared, are examples.

Some rights are individual. You can enforce them on your own, such as the right to vote or to receive a declared dividend. Others are exercised by a group of members, such as requisitioning a meeting or applying to the Tribunal on oppression. These need a minimum number of members or a minimum shareholding. Check the exact threshold in the section before you quote it.

Liability is about what you must pay. In a company limited by shares, your liability is limited to the amount unpaid on your shares. In a company limited by guarantee, it is limited to the amount you undertook to contribute if the company is wound up. In an unlimited company, there is no cap. A member may also be liable in special cases, such as when the number of members falls below the statutory minimum and the company carries on business, or when a person is not a member but is wrongly treated as one.

Membership is not permanent. It ceases when you transfer all your shares and the transfer is registered, when shares are forfeited or surrendered, on death, on insolvency in the manner the law allows, on the company being wound up or dissolved, or when you are removed in accordance with the articles. Cessation ends future rights. It does not always wipe out liabilities that have already arisen.

Under Chapter XXIA, a Producer Company has special rules. Under section 378D(1)(a), where all members are individuals, each member has a single vote irrespective of shareholding or patronage. Under section 378G(2)(b), the articles must say that each member has a single vote irrespective of shareholding, save as otherwise provided in the Chapter.

Key rules to remember

Liability of a member in a company limited by shares: Maximum liability = amount unpaid on the shares held; Face value or issue price less the amount already paid or credited as paid. Calls on partly paid shares are the main source of liability.
Liability in a company limited by guarantee: Maximum liability = amount undertaken in the memorandum; It arises only on winding up. It does not arise during the life of the company as a going concern.
Voting in a Producer Company, individual members only (section 378D(1)(a)): One member = one vote, irrespective of shareholding or patronage; If the membership is individuals and Producer Institutions together, section 378D(1)(c) also gives a single vote for every member.
Voting in a Producer Company, Producer Institutions only (section 378D(1)(b)): Votes = participation in the business in the previous year, as specified by the articles; In the first year of registration, votes are based on the shareholding of the Producer Institutions.
Conflict of business interest in a Producer Company (section 378D(4) and (5)): Conflicting business interest = cannot become a member; if acquired later, ceases to be a member and is removed under the articles; Section 378D(3) allows the articles to restrict voting to active members in any special or general meeting.
Mode of cessation: Cessation = transfer registered, forfeiture, surrender, death, insolvency, winding up, removal under the articles; Name the mode and the effect on liability in your answer.

How to solve Rights and Liabilities of Members questions

Use this method for any question on rights, liabilities or cessation of membership. It keeps your answer in the provision, facts, conclusion order that ICSI expects.

1Read the question and decide what it asks: a right, a liability, cessation, or a mix of these.
2Identify the type of company: limited by shares, limited by guarantee, unlimited, or a Producer Company. The liability and voting rules depend on this.
3State the provision in plain words. For a right, say whether it is statutory or from the articles. For liability, state the cap.
4Check the facts: is the person's name on the register of members, how much is unpaid, was the transfer registered, were calls validly made.
5Apply the rule to the facts. Do simple arithmetic for unpaid amounts and show it line by line.
6Check for exceptions, such as a threshold needed for a collective right or a special voting rule in a Producer Company.
7Write a clear conclusion in one or two sentences. Cite the Act and section only where you are certain of the number.

Quickest way: Right, cap, exit in three lines

When to use it: Use this when you have little time, for short notes or a 5-mark question.

Line 1: define a member as a person whose name is in the register of members.
Line 2: list rights in two groups, statutory (notice, vote, proxy, inspection, accounts) and other (dividend, transfer).
Line 3: give liability as unpaid amount on shares or guarantee amount, then list modes of cessation in one sentence.
Add one example with a rupee figure if marks allow.

Common mistakes in Rights and Liabilities of Members

Treating every shareholder as a member, or every member as a shareholder.
The two words are used loosely in daily talk.
Fix: Remember that a member is the person on the register. A holder of a share warrant may be a shareholder without being a member. State this distinction briefly if the question touches it.
Saying a member is liable for the company's debts.
Students forget that a company is a separate legal person.
Fix: Write that liability is limited to the unpaid amount on shares or the guarantee amount. Add that creditors sue the company, not the member.
Claiming a dividend right before the dividend is declared.
Students think a share automatically gives a right to profit.
Fix: A member has no right to dividend until it is declared. After declaration it becomes a debt of the company that the member can enforce.
Applying one-share-one-vote to a Producer Company.
The normal company rule is memorised and applied everywhere.
Fix: Use section 378D. Individual members get one vote each regardless of shareholding. Only Producer Institutions as the sole members vote by participation in the business.
Saying membership ends the moment a transfer deed is signed.
Students ignore registration of the transfer.
Fix: The transferee becomes a member when the name is entered in the register. Until then the transferor stays on the register, subject to the facts.
Listing rights without showing which are collective rights needing a minimum number of members.
Students memorise a flat list.
Fix: Split your list into individual and collective rights. For any threshold, quote it only if you are sure of the figure, otherwise describe it as a prescribed minimum.

Worked examples

Example 1

Ravi holds 500 equity shares of ₹10 each in Kaveri Foods Ltd, a company limited by shares. He has paid ₹6 per share. The company is wound up and its assets cannot pay creditors. What is the most Ravi can be asked to pay as a member? Explain.

Show the solution

Provision: in a company limited by shares, a member's liability is limited to the amount unpaid on the shares he holds.
Facts: face value is ₹10 per share and ₹6 has been paid, so ₹4 per share is unpaid.
Calculation: unpaid amount = 500 × ₹4 = ₹2,000.
Application: creditors cannot recover more than this from Ravi, even if the company's debts are very large.
Note: the ₹3,000 he has already paid (500 × ₹6) is not repaid to him to meet creditors' claims.

Answer: Ravi can be called upon to pay at most ₹2,000, the unpaid amount on his 500 shares. He is not personally liable for any other debts of Kaveri Foods Ltd.

Example 2

Sahyadri Farmers Producer Company Ltd has 400 individual members. Member A holds 5,000 shares and Member B holds 50 shares. At a general meeting, A claims 100 times the votes of B. Is A right? Explain.

Show the solution

Provision: under section 378D(1)(a), where the membership consists solely of individual members, voting rights are based on a single vote for every member, irrespective of shareholding or patronage of the Producer Company.
Facts: all 400 members are individuals, so this clause applies.
Application: A's larger shareholding gives no extra vote. Both A and B have one vote each.
Exception check: section 378D(3) lets the articles, if they so authorise, restrict voting rights to active members in a meeting. This restricts who may vote. It does not make votes proportional to shares.
Section 378G(2)(b) supports this, as the articles must provide that each member has only a single vote irrespective of the shareholding, save as otherwise provided in the Chapter.

Answer: A is not right. Under section 378D(1)(a), A and B each have one vote, whatever the number of shares they hold.

Exam tips

Start every answer with the definition of a member and the point that the name must be on the register. It earns easy marks.
In rights questions, group your points as statutory rights and other rights. Examiners reward a clear structure.
For liability problems, always show unpaid amount per share, then multiply by the number of shares. Write the rupee figure in the conclusion.
For Producer Companies, quote section 378D for voting and section 378G(2) for the mutual assistance principles in the articles.
When asked how membership ceases, list the modes and add one line on whether liability for past calls survives.

Practice questions from Members and Shareholders

Rights and Liabilities of Members: frequently asked questions

What are the main rights of members under the Companies Act, 2013?

Members have the right to receive notice of meetings, attend and vote, appoint proxies, get financial statements, and inspect registers and minutes of general meetings. They also have rights from the articles, such as transferring shares and receiving dividend once declared. Collective rights, like requisitioning a meeting, need a prescribed minimum support.

What is the liability of a member of a company?

In a company limited by shares, a member is liable only for the unpaid amount on his shares. In a company limited by guarantee, he is liable for the amount he agreed to contribute on winding up. In an unlimited company, liability has no cap.

How does membership of a company cease?

It ceases on a registered transfer of all shares, forfeiture, surrender, death, insolvency, winding up or dissolution of the company, or removal under the articles. In a Producer Company, a member who acquires a conflicting business interest ceases to be a member under section 378D(5).

Does a member have one vote per share in every company?

No. Voting in a company with share capital is usually linked to shares as the Act and articles provide. In a Producer Company with only individual members, each member has a single vote under section 378D(1)(a), irrespective of shareholding.