# Membership, Contributories and Liability Structures
## 1. Member [Sec 2(55)]
Three categories — all are members:
#
Category
Trigger
(i)
Subscribers to the MoA
Deemed to have agreed to be members; entered in Register of Members on incorporation
(ii)
Every person who agrees in writing to become a member AND whose name is entered in Register of Members
Both conditions needed
(iii)
Every person holding shares as beneficial owner in records of a depository
Demat shareholders
> Holding shares alone is not enough for cases (ii)/(iii) — entry in the register or depository record is essential.
## 2. Contributory [Sec 2(26)]
A person liable to contribute towards the assets of the company in the event of its winding-up.
### Clarification (Explanation):
A person holding fully paid-up shares IS a contributory — BUT has no liabilities of a contributory under the Act, while still retaining the rights of a contributory (e.g., right to vote in liquidation matters).
## 3. Company Limited by Shares [Sec 2(22)]
A company having the liability of members limited by the memorandum to the amount unpaid on shares held by them.
A company having the liability of members limited by the memorandum to the amount each member undertakes to contribute to the assets in the event of winding-up.
The 'guarantee' amount is set in the MoA.
May or may not have share capital.
Common for clubs, charities, Section 8 companies.
## Comparison Table
Feature
Limited by Shares
Limited by Guarantee
Source of liability
Unpaid amount on shares
Guarantee in MoA
When liability arises
At any time call is made
Only on winding-up
Typical use
Trading companies
Non-profits, clubs
Worked example
### Example 1
Q: A subscriber to MoA refuses to take shares post-incorporation. Is he still a member?
A: Yes. Sec 2(55)(i) deems every subscriber a member; the Registrar/company shall enter his name in the Register of Members on incorporation — refusal does not extinguish membership.
### Example 2
Q: X holds 1,000 fully paid shares of ABC Ltd; ABC enters winding-up. Is X a contributory? Is he liable?
A: X is a contributory under Sec 2(26), but as shares are fully paid, he has no liability to contribute — though he retains the rights of a contributory.
### Example 3
Q: A guarantee company with members guaranteeing ₹1,000 each is wound up with a deficit of ₹50 lakh and 1,000 members. What can the liquidator demand?
A: Maximum ₹1,000 × 1,000 = ₹10 lakh. Liability is capped by the guarantee amount in MoA.
⚠️ Common exam mistakes
Treating mere shareholders as members without checking Register entry / depository beneficial-ownership record.
Saying fully paid shareholders are NOT contributories — they are, but without liability.
Confusing limited by guarantee with limited by shares — the trigger and basis differ.
Saying guarantee liability is callable at any time — it arises only on winding-up.
Bare-Act text Section 2(21), 2(22), 2(26), 2(55) · Companies Act, 2013 · click to expand
Sec 2(55): 'Member', in relation to a company, means — (i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members; (ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company; (iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository.
Sec 2(26): 'Contributory' means a person liable to contribute towards the assets of the company in the event of its being wound up. Explanation. — a person holding fully paid-up shares in a company shall be considered as a contributory but shall have no liabilities of a contributory under the Act whilst retaining rights of such a contributory.
Sec 2(22): 'Company limited by shares' means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.
Sec 2(21): 'Company limited by guarantee' means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.