1. The subscribers to the memorandum of a company shall be taken to have agreed to become members of the company, and on its registration shall be entered as members in its register of members.
2. A person who agrees to become a member of a company, and whose name is entered in its register of members shall be a member of the company
Whereas, Smith and Keenan’s Company Law states that, there are several ways in which membership of a company may be acquired. These are as follows:
1. By subscribing the memorandum. When the company is registered, the persons who subscribed the memorandum automatically become members on subscription, and must be put on the register of members on registration of the company
2. By making an application on the basis of listing particulars or a prospectus for an allotment of shares.
3. By taking a transfer from an existing member.
4. By succeeding to shares on the death or bankruptcy of a member.
The persons mentioned in (2), (3) and (4) above do not actually become members until their names are entered in the register of members.
The case in point being Seremba Mark v Isanga Emmanuel (Company Cause-2005/24) whose facts are the applicant on or about the 4th August 1999 the 4th Respondent company was incorporated with the applicant being allotted 40% of the shares and the 1st Respondent 60% of the shares. The 4th Respondent company is a senior secondary school located at Kayunga in Mukono. Before the incorporation the school was run on the basis of a constitution dated 3rd September 1997. After incorporation the relationship between the Applicant and Respondent deteriorated and the Applicant was left the management and premises of the school. The 4th Respondent company (herein after called the school) then held a general meeting whereby the Memorandum and Articles of Association (herein after referred to as “The MEMARTS”) were amended. The amended memarts according to the Applicant allegedly allotted him 1 nominal share and introduced the 2nd and 3rd Respondents as members. It is the case for the Applicant that amendment is null and void as he was not invited to general meeting and the proper procedures to call the meeting were not followed.
The 1st Respondent in his affidavit in reply acknowledges that the Applicant was a founder member of the school but that he never subscribed and paid for the 40% shareholding allotted to him and that is why he was given a nominal 1 share.
Justice Geoffrey Kiryabwire. Held that, The application as I see it revolves around the legality of meeting of the 15th August, 2002. Of course part of the problem, it appears to me to be is the non maintenance of company records in the manner required by the Company Act. In the case of Mark Xavier Wamalwa and Another V Stephen Aisu companies cause 027 of 2005, court was invited to take judicial notice of the fact that Ugandan private companies are notorious for not maintaining company records like a register of members (under Section 112 and 120 of the Companies Act Rev ed 2000). In that case I did take judicial notice of this sad state of corporate governance in Ugandan companies and held that to resolve disputes of this nature both the de jure and de facto position will have to be looked at. In this particular case a rectification of the Register of members is sought but no Register of members of the company was tendered into court as evidence. A declaration as to the shareholding of the company is also sought but no share registered or share certificates of the company were tendered in court as evidence. Instead heavy reliance is placed on what happened between the parties before the school was incorporated as a limited liability company. I suppose that this is because that is the most documented part of the party’s business relationship. As is normal in such relationships the parties rely more on trust rather than to cultivate a legal relationship. When the trust fails there is not much of a legal structure to fall back on. In this particular case a lot of reliance is placed on the Greenvine College Constitution signed between the Applicant and the 1st Respondent on the 3rd September 1997 before the school was incorporated as a company on the 4th August 1999. The parties do not agree on the legal effect of this constitution. The Applicant testified that it was evidence of a legal partnership with the 1st Respondent. On the other hand the 1st Respondent denies that it is evidence of a partnership even though he agrees that the school was set up as a profit making venture. Be that as it may, this is not the dispute at hand. What I however find as relevant to consider is the effect of incorporation on this constitution. According to the learned authors K Smith and DJ Keenon in their book “Company Law” 3ed 1978 at page 21 they write
“From the date impressed upon the certificate the company becomes a body corporate with perpetual succession and a common seal, and with the right to exercise the powers given in its memorandum. The company’s life dates from the first moment of the day of incorporation (Jubilee Cotton Mills V Lewis [1924] AC 958 cited)”
The learned authors on the same page also wrote
“The issue of a certificate of incorporation incorporates the members of the company into a persona at law and limits their liability if the memorandum requires this…”
It is therefore follows and indeed it is trite law that a company once incorporated is not bound by pre-incorporation contracts/agreements made on its behalf by its promoters. In such a situation the promoters will incur personal liability on the said pre-incorporation contracts. I find that the Greenvine College Constitution 1997 whatever its legal effect on its promoters was a pre-incorporation contract/agreement for which Greenvine College Limited as incorporated in 1999 is not bound by therefore has no role to play in this dispute. To determine the legal relationship between the parties one therefore must look to the memarts of Greenvine College Limited. Now the evidence shows that there were 2 such memarts. The first was that dated 4th August 1999 and the second is its purported amendment filed at the companies registry on the 28th August 2002.
In conclusion I find that the meeting of the 15th August 2002 was improperly convened and therefore was illegal. All resolutions passed at that meeting therefore are null and void. It therefore follows that Mr. William Muwaya (the 2nd Respondent) and Steven Isabirye (the 3rd Respondent) did not become members, shareholders and or office bearers of the company as a result of that meeting. This is the defacto and de jure position. However, since no register of members within the meaning of the law was presented in court I find that there is no register to rectify. Since the Applicant has equally on the balance of probability failed to prove that he paid for his 40 shares it follows that M/s Greenvine College Limited has only one recognizable fully paid up shareholder and that is Mr. Emmanuel Isanga (the 1st Respondent). I therefore find that for the above reasons it is impracticable to call a meeting of the company. I therefore exercise my discretion as granted under Section 135 of the Companies Act to on the courts own motion to direct a meeting of the company the quorum of which shall be one member Mr. Emmanuel Isanga. The meeting shall be called by the Registrar of Companies and held at his office at the cost of the company. All other incidental costs for directions given by Registrar of Companies shall also be paid by the company. The meeting shall inter alia cover the following matters; 1. Rectify and provide for a proper duplicate file of the company. 2. Establish a proper register of members of the company. 3. Establish a proper share register for the company. 4. Invite new members, allot and make a call on shares so given to the new members. 5. Receive audited accounts for the company for the years (after incorporation) 1999, 2000, 2001, 2002, 2003 2004 and 2005 prepared by an independent auditor acceptable to the Registrar of Companies at the company’s cost. 6. Such other matters as the Registrar of Companies may deem necessary.
I award the Applicant 2/3 of his taxed bill of costs, as he is only partly successful.
Capacity for one to be a Member of a Company.
The general rule of capacity for one to be a member is governed by the general law of contract, this therefore means that anyone who has the capacity to make a contract may become a member of a company. However, if the company goes ahead and register anyone who does not have capacity to contract then that action is ultra vires and the directors of the company can be made accountable.
The position as regards company membership appears as follows;
1. A minor may be a member of a company unless the articles otherwise provide.
2. Registration of a minor may give rise to difficulties in the case of partly paid shares or unlimited companies, because a minor can repudiate the contract with the company at any time during minority and for a reasonable time thereafter.
3. If he does repudiate, he cannot recover the money he has paid up to the time of repudiation if the shares have ever had any value
The best case to place this into perspective is the case of Steinberg v Scala (Leeds) Ltd[3] whose facts are; the claimant, Miss Steinberg, purchased shares in the defendant company and paid certain sums of money on application, on allotment and on one call. Being unable to meet future calls, she repudiated the contract whilst still a minor and claimed:
1. Rectification of the register of members to remove her name therefrom, thus relieving her from liability on future calls; and
2. The recovery of the money already paid. The company agreed to rectify the register and issue was joined on the claim to recover the money paid.
Court Held that; the claim under (2) above failed because there had not been total failure of consideration. The shares had some value and gave some rights even though the claimant had not received any dividends and the shares had always stood at a discount on the market.
A key consideration on registration of members of a company is that the liabilities of members are limited to the amount of shares held by them in the case of a company having share capital while in the case of a company limited by guarantee the liability of members is limited to the amount of guarantee given by them. But, in the case of an unlimited company the members have to contribute from his personal assets to pay the debts.
The members cannot take part in the management of the company, i.e. the management of the company is looked after by the Board of Directors. Although the right to appoint and remove the directors is in the hands of members.
Liability of Members of a holding Company
By definition, a holding company is a company that doesn’t have any operations, activities, or other active business itself. Instead, the holding company owns assets. These assets can be shares of stock in other corporations (Companies), limited liability companies, limited partnerships, private equity funds, hedge funds, public stocks, bonds, real estate, song rights, brand names, patents, trademarks, copyrights—virtually anything that has value.
Therefore, Section 48 of the Companies Act 2012 is to the effect that; except as otherwise provided in this section, a body corporate cannot be a member of a company, which is its holding company and any allotment, or transfer of shares in a company to its subsidiary is void.
And subsection (2) states that nothing in this section shall apply where the subsidiary is concerned as personal representative, or where it is concerned as trustee, unless the holding company or a subsidiary of it is beneficially interested under the trust and is not so interested only by way of security for the purposes of a transaction entered into by it in the ordinary course of business which includes the lending of money.
And under Subsection (3) provides that this section shall not prevent a subsidiary, which is, at the commencement of this Act, a member of its holding company, from continuing to be a member but, subject to subsection (2), the subsidiary shall have no right to vote at meetings of the holding company.
Whereas Subsection (4) states that Subject to subsection (2), subsections (1) and (3) shall apply in relation to a nominee for a body corporate which is a subsidiary, as if references in subsections (1) and (3) to such a body corporate include references to its nominee.
And lastly, Subsection (5) states that In relation to a company limited by guarantee or unlimited which is a holding company, the reference in this section to shares, whether or not the company has a share capital, shall be construed as including a reference to the interest of its members as such, whatever the form of that interest.
What is the procedure and effects of registering members of a company.
Under Section 119 of the Companies Act 2012 provides that A company shall keep a register of its members and enter in the register the following particulars
(a) The names and postal addresses of the members and in the case of a company having a share capital a statement of shares held by each member, distinguishing each share by its number if the share has a number and of the amount paid or agreed to be considered as paid on the shares of each member;
(b) The date on which each person was entered in the register as a member; and
(c) The date on which any person ceased to be a member, except that where the company has converted any of its shares into stock the register shall show the amount and class of stock held by each member instead of the amount of shares and the particulars relating to shares specified in paragraph (a).
Thereafter under Subsection 2 the register of the names shall be kept at the registered office of the company, except that—
(a) If the work of making it up is done at another office of the company, it may be kept at that other office; and
(b) If the company arranges with some other person for the making up of a register to be understood on behalf of the company by that other person, it may be kept at the office of that person at which the work is done but it shall not be kept at a place outside Uganda
Whereas Subsection 3 states that, a company shall send notice to the registrar of the place where its register of members is kept and of any change of place.
And under Subsection 4 states that, A company shall send notice under this section where the register has, at all times since it came into existence or in the case of a register in existence at the commencement of this Act, at all times since the commencement of this Act been kept at the registered office of the company.
However, as stated under Subsection 5, In the case of a company, which does not have a share capital but has more than one class of members, there shall be entered in the register, with the names and addresses of the members, the class to which each member belongs.
And also under Subsection 6, where a company defaults in complying with subsection (1) or makes default for fourteen days in complying with subsection (5), the company and every officer of the company who is in default is liable to a daily default fine of twenty five currency points
Case in point is Burns v Siemens Bros Dynamo Works Ltd whose facts state that, the claimants, Burns and Hambro, were the joint owners of shares in the defendant company. The shares were entered in the company’s register in the joint names of Burns and Hambro. The company’s articles provided that, where there were joint holders, the person whose name appeared first in the register of members, and no other, should be entitled to vote in respect of the shares. The result was, of course, that Hambro had no voting rights. This action was brought by Burns and Hambro asking that the register be rectified so as to show roughly half of the joint shareholding in the name of each joint holder.
It was held by the High Court that the court had jurisdiction to make such an order, and the company was required to rectify the register, showing shares numbered 1 to 10,000 in the names of Burns and Hambro, and shares numbered 10,001 to 19,993 in the names of Hambro and Burns
A company that constitutes more than 50 members.
Under Section 120 of the Companies Act 2012 which is to the effect that,
A company which has more than fifty members shall, unless the register of members is in such a form as to constitute in itself an index, keep an index of the names of the members of the company and shall, within fourteen days after the date on which any alteration is made in the register if members, make any necessary alteration in the index.
(2) The index, which may be in the form of a card index shall, in respect of each member contain a sufficient indication to enable the account of that member in the register to be readily found.
Who has the right to inspect the Companies Register?
According to Section 122 of the Companies Act 2012, it states clearly that,
(1) Except when the register of members is closed under this Act, the register and index of the names, of the members of a company shall, during business hours be open to inspection of any member without charge and of any other person on payment of one currency point or such less sum as the company may prescribe, for each inspection.
(2) The company may in a general meeting impose reasonable restrictions on inspection under subsection(1) but the restrictions shall not be such as to reduce the period of inspection to less than two hours in each day.
(3) A member or other person may require a copy of the register or of any part of it, on payment of one currency point or such less sum as the company may prescribe.
(4) The company shall cause any copy required under subsection (3) by any person to be sent to that person within a period of fourteen days commencing on the day next after the day on which the requirement is received by the company.
(5) Where an inspection required under this section is refused or if a copy required under this section is not sent within the period specified in subsection (4), the company and every officer of the company who is in default is liable in respect of each offence to a fine not exceeding twenty five currency points and further to a default fine of five currency points in respect of each day of which the default continues.
(6) In the case of a refusal or default referred to in subsection (5), the court may, by order compel an immediate inspection of the register and index or direct that the copies required shall be sent to the person requiring them
If a company makes an application to the court and the court is satisfied that the inspection or copy is not sought for a proper purposes, then it shall direct the company not to comply with the request and it may order that the company’s costs on the application be paid in whole or in part by the person who made the request.
Indeed, Section 123 of the Companies Act 2012 makes it an offence for a person to knowingly or recklessly to make in a request under Section 119(2)(b) a statement that is misleading, false or deceptive in a material particular. This gives the court a discretion and it may refuse to make an order, e.g. in the case of a pro-hunting charity which felt that a disclosure of members might be detrimental. A compromise might be achieved by the company offering to act as a post-box for confidential communication to and from members as seen in the case of P v F Ltd. Where the Court of Appeal accepted a similar post box undertaking from a company and refused to make an order for inspection whereas in Pelling v Families Need Fathers Ltd where the defendant company was a charity with the object of helping parents to stay in touch with their children after separation or divorce.
NB
It is worth noting that the right of inspection terminates on the commencement of winding-up as seen in Re Kent Coalfields Syndicate [1898] 1 QB 754. Any rights then existing are derived from the insolvency rules, and not from the Act, and may require an order of court.
The powers of Court during Registration.
Under Section 125 of the Companies Act 2012 states that; (1) Where—
(a) The name of a person is without sufficient cause entered in or omitted from the register of members of a company; or
(b) Default is made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member, the person aggrieved or any member of the company or the company may apply to the court for rectification of the register.
Whereas Subsection 2 states that, where an application is made under this section, the court may either refuse the application or may order rectification of the register and payment by the company of any damages sustained by any party aggrieved.
And under Subsection 3 provides that, on an application under this section the court may decide any question relating to the title of any person who is party to the application to have his or her name entered in or omitted from the register whether the question arises between members or alleged members on the one hand and the company on the other hand and generally may be decided for rectification of the register.
And, Section 125 (4) is to the effect that, In the case of a company required by this Act to send a list of its members to the registrar, the court, when making an order for rectification of the register shall by its order direct notice of the rectification to be given to the registrar.
It is worth noting that Trusts are not to be entered on the register.
As provided for under Section 126 of the Companies Act 2012, A notice of any trust, expressed, implied or constructive shall not be entered on the register or be receivable by the registrar.
Case in point is Simpson v Molson’s Bank whose facts are that, The executors of the Hon John Molson were given 10 years by his will to wind up his estate. After the expiration of that time, and in breach of the terms of the will, they made a transfer of certain shares in the bank. The claimants, who had an interest in the residuary estate of John Molson, brought this action claiming damages from the bank because it had registered a transfer knowing that transfer to be in breach of trust, such knowledge being derived from the fact that a copy of the will was deposited at the bank, and that William Molson, the testator’s brother, was one of the executors who signed the transfer and was also the president of the bank.
Court Held that the bank was not liable for registering the transfer although it had notice that it was in breach of trust, because s 36 of the Act of Parliament incorporating the bank provided specifically that it should not take notice of any trust over its shares.
Summarily one can become a member through the following ways;
1. If a person subscribes the memorandum of association of a company, he becomes a member by signing it.
2. If a person becomes the beneficial owner of shares whose name is registered in the record of the depository, then also he becomes a member.
3. If a person gets shares by way of transfer and the transfer is recorded by the company, along with the entry of the name of the transferee in the register of members.
4. If a person gets shares by way of transmission and the transmission is recorded by the company along with the entry of the name in the register of members.
5. If a person agrees to take the qualification shares of the company and pay for it then also he becomes a member of the company.
How do you terminate one’s membership in a company?
Termination of membership is complete when the name of a former member is removed from the register. This may occur by:
(a) Transfer of the shares to a purchaser or by way of gift (subject to liability to be put on the list of members for one year if the company goes into liquidation
(b) Forfeiture, surrender, or a sale by the company under its lien;
(c) Redemption or purchase of shares by the company;
(d) The registration of a trustee in bankruptcy, or by his disclaimer of the shares;
(e) Death of the member;
(f) rescission of the contract to take the shares arising out of fraud or misrepresentation in the prospectus, or by reason of irregular allotment;
(g) dissolution of the company by winding-up or amalgamation or reconstruction under Insolvency Act 2011 and Section 236 of The Companies Act 2012,
(h) compulsory acquisition (as explained under Chapter 24 in Smith and Keenan’s Company Law);
(i) under the provisions of the company’s constitution, e.g. expulsion under the articles for competing with the company ( as seen in the case of Sidebottom v Kershaw Leese, 1920).
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