Methods of Cessation of Membership from a company

Methods of Cessation of Membership from a company

(kasneb cpa company law Dec 2008 Q8 – Explain the ways in which a person may cease to be a member of a company- 20 marks

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A person's membership of a company may cease or come to an end in many ways,

i.          Transfer

A "transfer" of shares occurs if an existing member sells ALL of his shares. to a third party.

ii.         Forfeiture

Where a company's articles authorize the directors to forfeit a member's shares and the director’s forfeit ALL of the shares held by a member, the member will cease to be a member from the date specified in the articles as the effective date for forfeiture.

iii.        Surrender of Shares

A person's membership will come to an end if he surrenders all his shares to the company with the approval of the directors.

iv.        Death

When a person dies, his membership of a company will come to an automatic end by virtue of the provisions of the Law of Succession. The shares previously held by him become, legally, the property of his personal representative.

v.         Bankruptcy

When a person becomes bankrupt, his membership of a company will come to an end under the provisions of the Bankruptcy Act which vest a bankrupt's property in his trustee in bankruptcy

vi.        Sale by a Company in exercise of lien

A company, like an unpaid seller under the Sale of Goods Act, has a right of lien on its shares as security for the balance of their price. If the Company sells ALL the shares held by a member, the membership will come to an end from the moment the buyer's name is entered in the register.

vii.       Redemption of redeemable preference shares

If a member's entire holding consist exclusively of redeemable preference shares and all of these shares are redeemed by the company, he will cease to be a member from the date on which his name is removed from the register of members.

viii.      Repudiation by an infant

An infant member has a common law right to repudiate his membership of a company if there has been a total failure of consideration because the shares have become worthless: 

ix.        Liquidation or winding up

A company's liquidation terminates membership of all former members, from the moment it becomes effective.

x.         Rescission of Contract:

A shareholder who rescinds a contract of purchase of shares or allotment by reason of a vitiating element or otherwise ceases to be a member

xi.        Disclaimer by trustee in bankruptcy: