CHAPTER 10 MEMBERS OF COMPANY.doc

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DR. MD. ABDUL JALIL, COMPANY LAW, 2013

CHAPTER TEN: MEMBERS OF A COMPANY

Who are members in a company?

All shareholders in a company may not be members. There are two criteria to determinewhether a particular shareholder is a member or not. Those criteria are:

a) Subscribers in the memorandum of the company;b) Names written in the register of members.

The following people are members in a company:

i. The people whose names are written in the memorandum as subscribers;ii. The people whose names are written in the register of members.

Who are not members in a company?

The following people are not members of a company:

i. The people whose names are not included in the memorandum as subscribers;ii. The people whose names are not in the register of members.

Rights of Members

A member of a company has the following rights:

i. Observance of memorandum and articles of the company by members;

The memorandum and articles of a company create a contract among the membersinter se and between members and the company. Therefore, all members includingthe company itself are bound to observe all provisions provided in the articles andmemorandum of the company. If any member attempts to breach any provisions inthe memorandum or articles, any other member may file a suit in the court to restrainthe breach. Court may grant injunction requiring the member or director to stopbreaching the memorandum or articles immediately. When an act has been done inbreach of memorandum or articles, any member can apply to the court to set asidethe act or transaction.

Thus non-observance of any provision of the memorandum or articles of the companyby any member, gives right to the other individual members to file a petition in thecourt to restrain the member from breaching the articles or memorandum. And whenan act has already been done or a transaction has been made by directors or anyother member by breaching the memorandum or articles, any member has a right tofile a petition in the court to set aside the act or transaction.

In Grant v. John Grant & Sons Pty Ltd [1950] 82 CLR 1, the court held that anymember of a company can apply to the court to set aside the act done in breach ofmemorandum or articles of the company.

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DR. MD. ABDUL JALIL, COMPANY LAW, 2013In Salmon v. Quin & Axtens Ltd, [1909] 1 Ch 311, the Court of Appeal of England heldthat any member can apply to the court to restrain any impending breach ofmemorandum or articles of the company or restrain an act which would be such abreach.

ii. Right to get access to company records and to have certain information;

All members of a company has right to be fully informed of what is happening in thecompany. They have right to have access to all records in the company such asvarious registers and minutes of meetings that are kept in the company andmaintained by the Secretary of the company. The members may request to get acopy of the minutes at a nominal charge. [S.157 (2) of Companies Act 1965(Malaysia)]

A member of a company has right to inspect the following registers that are kept inthe company:

i) The register of member of the company; [S.160 (2)]ii) The register of directors, secretaries, managers and auditors of the

company; [S.141 (5)]iii)The register of directors shareholding; [S.134 (8)]iv)The register of substantial shareholders; [S. 67 L2]v) The register of debenture holders; [S. 70 (3)]vi)The register of charges; [S.115 (3)]vii)The register of holders of participatory interest. [S.92 (2)]

ii. Right to restrain ultra vires and illegal actsUltra vires mean beyond power or without power to do something. When some acts aredone without power or authority, it is known as ultra vires act. If any director of acompany does an act without power, that act will be considered as ultra vires act andany member can restrain any attempted ultra vires act by filling a petition in the court.The court may issue prohibitory injunction requiring the director or directors to stop theultra vires act immediately. Similarly, if any director attempts to commit an illegal act,any member has right to restrain him from committing the ultra vires act. See section20(3) of the Companies Act 1965.

In Eng Hock & Others v. Malay-Siamese Prospecting Co. Ltd. [1933-34] FMSLR 350, thecourt observed that a member of a company can claim an injunction to restrain thecompany from acting on the ultra vires resolution.

iv. Right to be treated fairly

Section 181 of Companies Act1965 requires the directors and other officers of acompany to treat all members fairly. By fair treatment the section means that nomember should be treated in an oppressive manner, his interest should not bedisregarded, no member should be unfairly discriminated, no act should be prejudicial toone or more members of the company. In Re Kong Thai Sawmill [1978] 2 MLJ 227 PC,Lord Wilberforce held that section 181 was introduced to strengthen the position ofminority shareholders in limited companies. However, in Kumagai Gumi Co Ltd [1994] 2

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DR. MD. ABDUL JALIL, COMPANY LAW, 2013MLJ 789; the court held that relief under section 181 is available to majority shareholderswho are not in control of management of the company.

So, the section has identified four types of acts as unfair treatment such as: oppression,disregard of interest, unfair discrimination and prejudicial act. Every member of acompany has a right to be treated fairly. If any minority shareholder is treated unfairlyby the board of directors, he may file a petition in the court under Section 181 of

Companies Act for an order. This section provides eight grounds on which any membercan file a petition in the court for certain remedies provided in section 181(2) of theCompanies Act. The grounds are as follows:

i) That the affairs of the company are being conducted in a manner which isoppressive to one or more of the members or holders of debenturesincluding the petitioner;

ii) That the powers of the directors are being exercised in a manneroppressive to one or more of the members including the petitioner;

iii)That the affairs of the company are being conducted in disregard of theinterest of one or more of the members of the company including thepetitioner;

iv)That the powers of the directors are being exercised in disregard of thepetitioners interests as a member of the company;

v) That some act of the company has been done or threatened to be donewhich unfairly discriminate against one or more members of the companyincluding the petitioner;

vi)That some resolution of the members or any class of them has been passedor is proposed which unfairly discriminates against one or more of themembers including the petitioner;

vii)That some act of the company has been done or is threatened to be donewhich is prejudicial to one or more members of the company including thepetitioner;

viii) That some resolution of the members or any class of them has beenpassed or is proposed which is otherwise prejudicial to one or more of themembers including the petitioner.

Any member can file a petition in the High Court under any one or more groundsmentioned above for the following orders (remedies). After receiving the petition theHigh Court may make such orders as it thinks fit including:

i) direct or prohibit any act or cancel or vary any transaction or resolution;ii) regulate the conduct of the affairs of the company in future;iii) provide for the purchase of the shares or debentures of the company by other

members or holders of debentures of the company or by the company itself;iv) in the case of purchase of shares by the company provide for a reduction

accordingly of the companys capital; orv) provide that the company be wound up.

v. Right to attend general meeting and voting.

Every member has a right to attend general meeting and has right to vote. Votingright might not be given if the member has not paid all calls or other sums payableby him in respect of his shares and if the shares in question is preference shares.[Section148 (1) and (2) of the Companies Act]

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DR. MD. ABDUL JALIL, COMPANY LAW, 2013The voting right of a member is fundamental right. He can exercise his voting rightin the manner he thinks fit for his own interest. [Carruth v. Imperial ChemicalIndustries Ltd. [1937] AC 707]. Section 148(1) provides that every member shalhave the right to vote on any resolution, not withstanding anything to the contraryin the companys memorandum and articles. In Pender v. Lushington, the court ofChancery in England held that a denial of a members voting right is aninfringement of his personal right in respect of which he can maintain personal

action in the court. The members have right to receive notice of meetings on duetime.

6. Fraud committed on minority shareholders. Edward case, Burland case.7. Not complying with special majority vote requirement. Example: alteration of MOA andAOA.8. Serving notice for meeting improperly.9. When directors are wrongdoers and they are in control of the company. Foss v.Harbottle.

Liability of Members:

Liability of members in a limited liability company is limited to the value of the sharestaken or guarantee given. In the event the company is wound up, a member will only beliable to pay on the unpaid up shares only. When he has paid all the money on theshares he has taken, he has no further liability to pay. The directors might be personallyliable to pay compensation to the company for negligent act, for breach of contract withoutsiders or committing fraud with company, its shareholders and creditors.

Rights of Members: An Islamic Perspective

Trust position, fiduciary position of directors: Surah An-Nisa (4): 58, 135; Surah Al-Araf(7): 29. One hadith on truthfulness and another hadith on three types of judges.

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CHAPTER 10 MEMBERS OF COMPANY.doc