Corp. Law Note (cont.)

Membership of a Company

Definition of Membership

  • A member is defined as an individual who owns at least one share or holds voting rights and is registered in the company's register of members. This definition is stipulated in section 79 of the Companies and Allied Matters Act (CAMA).

Categories of Members

  • Subscribers: These are individuals or entities who subscribe to the Memorandum and Articles of Association (Memart) of a company, and they automatically become members upon the registration of the company.

  • Other Individuals: Individuals who agree in writing to join the company or are allotted shares as per company provisions can also become members.

Cumulative Conditions to Become a Member

  • Agreement in Writing: To formalize their membership status, an individual must agree in writing. This includes various methods such as allotment of shares, transfer from existing members, or the transmission of shares upon the death of a member. The agreement commonly outlines the rights and obligations of the member in context with the company’s rules.

  • Entry in the Register: For legal recognition, the individual's name must be entered into the Register of Members, acting as an official record for confirming membership status.

Ways to Become a Member

Methods of Membership Acquisition:

  • Subscription: Individuals who take up shares during the incorporation stage are automatically deemed members upon the official registration, which signifies their legal acknowledgment of owning part of the company’s equity. Subscription may also involve prospective members expressing interest during the pre-incorporation process.

  • Transfer: A current member may transfer shares to another individual. This process must comply with the company’s articles of association, and the transferee’s name must be duly entered in the Register of Members for official recognition (as specified in section 176(2) CAMA). Transfers may occur for various reasons, including financial needs or strategic restructuring.

  • Transmission: Upon the death of a member, their shares are transferred to designated personal representatives (executor or administrator). These agents must register themselves or nominate others to conduct the shares’ registration (section 179 CAMA). The process ensures that the deceased's assets are managed according to their wishes and applicable laws.

  • Allotment: New shares can be allotted according to company provisions and must comply with relevant company laws, such as sections 149-154 CAMA. The allotment process must ensure fairness and equity, giving existing and new members the right to participate under specific conditions set by the company.

Capacity to Become a Member

Exclusions (section 106 CAMA):

  • Individuals of unsound mind are excluded from membership due to an inability to understand their obligations and rights.

  • Individuals who are undischarged bankrupts cannot become members, reflecting legal limitations due to their financial status.

  • Individuals under 18 years can become members but are not counted towards minimum membership requirements. This allowance recognizes the potential involvement of youth in entrepreneurial activities.

  • Corporate bodies in liquidation are excluded since their legal status does not allow them to engage in new memberships or financial commitments.

  • Aliens (foreigners) who have not satisfied necessary conditions for membership, such as required approvals, are not eligible to become members.

Rights of Members

  • Right to Attend, Speak, and Vote: Members have the fundamental right to participate in meetings (Sections 107, 251(1) CAMA). Voting privileges often correlate with the number of shares owned, influencing decisions directly impacting the company’s direction.

  • Right to Notice of Meetings: Members are entitled to receive advance notice of general meetings, as outlined in section 243(1)(a). Such notices ensure members can prepare and engage meaningfully in discussions.

  • Right to Transfer Shares: Members may transfer shares, treated as personal property (section 139 CAMA). This right allows members to liquidate parts of their investment or pass shares to beneficiaries.

  • Right to Receive Dividends: Members are entitled to dividends declared by the company. If dividends are unpaid, they can claim this as a special debt within a 12-year timeframe (section 432 CAMA). This provides a security and return on their investment.

  • Voting by Poll: Members can demand that decisions be made by poll, which is a fair voting method ensuring proportional representation (section 248(1) CAMA).

  • Right to Appoint Proxy: Particularly important in companies limited by shares (section 254 CAMA), this right allows members to empower another individual to vote on their behalf, ensuring participation even when physically absent.

  • Right to Call Extra-Ordinary General Meeting (EGM): Members can petition for an EGM to address pressing issues (section 239(2) CAMA), ensuring accountability and responsiveness by management.

  • No Extra Liability: Once members have fully paid for their shares, they incur no further liability beyond that payment, providing a level of financial security.

Minority Protection Rights:

  • Right to Participate in Appointments: Members play a crucial role in influencing vacancies for director and officer roles through election processes.

  • Right to Return of Capital: Members can reclaim capital during share capital reductions or winding up, subject to the company's financial capability.

Obligations of Members

  • The primary obligation of members is to ensure payment on shares called by the company to avoid forfeiture, as detailed in sections 164 and 165 CAMA. This financial responsibility safeguards the company’s liquidity and integrity.

Cesser of Membership

Instances of Cesser:

  • Transfer of all shares (section 176 CAMA) results in loss of membership.

  • Share forfeiture due to failure to pay calls, as described in section 165 CAMA.

  • Sale of shares enforced due to lien, applicable under section 164 CAMA, often as a protective measure for creditors.

  • Valid surrender of shares initiated by a member can also terminate membership.

  • The death of a member leads to cessation of membership and potential transfer of shares to heirs or executors.

Meetings of a Company (Sections 235-240 CAMA)

Types of General Meetings:

  • Statutory Meeting: Mandatory for public companies, held within the first 6 months post-incorporation. Notice must be given at least 21 days in advance, except with unanimous consent.

  • Annual General Meeting (AGM): Must occur within 18 months of incorporation and subsequently every 15 months. Members may petition for an AGM if necessary and default occurs (section 237(2) CAMA).

  • Extraordinary General Meetings (EGM): Convened for urgent matters requiring immediate resolution, providing flexibility to the company’s governance.

  • Court Ordered Meetings: These may be mandated by the court in circumstances needing judicial oversight, ensuring compliance with legal processes.

Statutory Meeting

  • Must be held within 6 months of incorporation, requiring a notice period of at least 21 days prior to the meeting, with the possibility of shortening this period through unanimous consent.

AGM

  • Must be observed within 18 months of the company's incorporation, with subsequent AGMs every 15 months therefore. Members can petition for an AGM if defaults in holding it are identified (section 237(2) CAMA).

Businesses Transacted at AGM

  • Ordinary Business: This includes essential transactions such as:

    • Declaration of dividends

    • Presentation of financial statements

    • Election of retiring directors

    • Appointment of auditors as mandated by section 228 CAMA.

Voting at General Meetings (sections 248-250 CAMA)

Types of Voting:

  • Show of Hands: Each member receives one vote, regardless of shareholding structure.

  • Poll: This allows members to request a vote where each vote reflects the proportion of shares owned.

  • Votes must be cast either in person or via a proxy; voting rights are deemed sacred unless otherwise specified in the company's articles (section 249 CAMA).

Proxy Voting

  • Members have the right to appoint proxies to vote on their behalf (section 254 CAMA). This right can be utilized across all meeting types unless restricted by the company’s Articles of Association.

Resolutions (section 258 CAMA)

Types of Resolutions:

  • Ordinary Resolution: Requires a simple majority (over 50%).

  • Special Resolution: Requires a 3/4 majority and must be preceded by a notice of 21 days, ensuring transparency.

  • Written Resolutions: Valid for private companies and can be passed without convening a physical meeting, enhancing efficiency.

Removal of Directors

  • Directors can be removed by members according to specified procedures, or through requisition, should necessary motions be followed. If a removal is executed improperly, the director may seek reinstatement and pursue compensation for incurred damages.

General Duties of Directors

  • Directors are expected to act as trustees of the company’s interests, holding fiduciary duties demanding good faith and the exercise of necessary care and skill in managing the company’s affairs (section 309 CAMA).

Company Secretary Duties (Chapter 12 CAMA)

  • The company secretary has a vital role in ensuring compliance with regulatory requirements. Their duties include:

    • Attending all meetings and ensuring accurate minute-taking.

    • Ensuring adherence to all legal and regulatory frameworks governing the company.

    • Maintaining statutory records, such as the Register of Members, is essential for accountability.

    • Filing required documents and returns with the Corporate Affairs Commission (CAC) as mandated by sections 330-335 CAMA. This work supports the operational integrity of the company and fosters trust among members and stakeholders.