Definition
A member of a company, also known as a shareholder, is an individual or entity that holds shares in a company. The names of these members are formally recorded in the company’s register of members.
Founder members are those who sign the memorandum of association during the formation of the company. Any individual or entity who later acquires shares becomes a member as well.
Examples
- Alice, a Founding Member: Alice is a founding member of XYZ Ltd., having signed the memorandum of association when the company was incorporated.
- Bob, a Subsequent Member: Bob purchases shares of XYZ Ltd. on the stock market, becoming a member once his name is entered in the register of members.
- Institutional Investors: An institutional investor, such as a pension fund, acquires a significant shareholding in XYZ Ltd. and is subsequently listed in the register of members.
Frequently Asked Questions
1. How does one become a member of a company?
A person can become a member of a company by purchasing shares and having their name entered into the register of members held by the company.
2. What is the memorandum of association?
The memorandum of association is a legal document signed by the initial shareholders of a company during its formation, which establishes the company’s constitution and aims.
3. Can someone lose their status as a member of a company?
Yes, an individual can lose their membership status if they sell or transfer all of their shares, or if the company repurchases their shares.
4. What is the role of the register of members?
The register of members records all current shareholders’ names, addresses, and the number of shares each holds. It is crucial for determining membership and for corporate governance.
5. What is the difference between a shareholder and a member?
The term “shareholder” typically refers to the owner of shares, while “member” is a broader term encompassing anyone whose name appears on the register of members.
- Shareholder: An individual or entity that owns one or more shares in a company.
- Register of Members: A formal record kept by a company listing its shareholders’ names, addresses, and the number of shares held.
- Founder Members: The initial members who sign the memorandum of association when a company is formed.
- Memorandum of Association: A legal document required during the formation of a company, outlining the company’s structure and its members.
- Founders’ Shares: Shares allocated to the founder members of a company at the time of its establishment.
Online Resources for Further Study
- Investopedia on Shareholders
- Corporate Finance Institute on Register of Members
- UK Government on Shares and Capital
- The Balance on Corporate Governance
Suggested Books for Further Study
- “Guide to Companies Act: The Basics” by David Bennet
- “Corporate Governance and Company Law” by Nicholas Bourne
- “Principles of Corporate Finance” by Richard A. Brealey and Stewart C. Myers
Accounting Basics: “Member of a Company” Fundamentals Quiz
### How does a person become a member of a company?
- [x] By purchasing shares and being entered in the register of members.
- [ ] By signing any internal document.
- [ ] By attending annual general meetings.
- [ ] By receiving dividends from the company.
> **Explanation:** A person becomes a member of a company by purchasing shares and having their name listed in the company's register of members.
### What important corporate document do founders sign during the formation of a company?
- [ ] Articles of Association
- [x] Memorandum of Association
- [ ] Shareholder Agreement
- [ ] Corporate Strategy Document
> **Explanation:** Founders sign the memorandum of association during the formation of a company, which outlines the company's structure and objectives.
### Can a person lose their membership status?
- [x] Yes, by selling or transferring all their shares.
- [ ] No, membership is for life.
- [ ] Only if the company goes bankrupt.
- [ ] Only if they voluntarily resign.
> **Explanation:** An individual can lose their membership status if they sell or transfer all of their shares in the company.
### What does the register of members contain?
- [x] Names, addresses, and number of shares held.
- [ ] Only the names of the members.
- [ ] Company policies and shareholders' votes.
- [ ] Minutes of all shareholder meetings.
> **Explanation:** The register of members contains information such as names, addresses, and the number of shares each shareholder holds.
### Which document provides major guidelines for the governance of a company?
- [ ] Financial statements
- [ ] Marketing strategy
- [x] Memorandum of Association
- [ ] Employee handbook
> **Explanation:** The memorandum of association provides major guidelines for the governance and structure of a company.
### What term denotes the initial members who sign the memorandum of association?
- [ ] Initial Investors
- [ ] Board Members
- [x] Founder Members
- [ ] Committee Members
> **Explanation:** Founder members are the initial members who sign the memorandum of association during the formation of the company.
### What term best describes a person or entity that owns one or more shares in a company?
- [ ] Employee
- [ ] Manager
- [x] Shareholder
- [ ] Agent
> **Explanation:** A shareholder is an individual or entity that owns one or more shares in a company.
### Is there a difference between a shareholder and a member?
- [x] Yes, a member is anyone listed in the register of members, whereas a shareholder is someone who owns shares.
- [ ] No, they are the same.
- [ ] A member has more rights than a shareholder.
- [ ] A shareholder must be an employee.
> **Explanation:** There is a difference. A member is anyone listed in the register of members, whereas a shareholder specifically owns shares.
### Which role does the register of members play in corporate governance?
- [ ] It serves as an employee directory.
- [ ] It determines salaries and bonuses.
- [x] It documents ownership and voting rights of shareholders.
- [ ] It records financial transactions.
> **Explanation:** The register of members plays a critical role in corporate governance by documenting the ownership and voting rights of shareholders.
### Why is the memorandum of association important?
- [ ] It details daily operational procedures.
- [x] It outlines the company's structure and its initial members.
- [ ] It acts as a marketing tool for investors.
- [ ] It provides employment contracts for founders.
> **Explanation:** The memorandum of association is important because it outlines the company's structure, aims, and the details of its initial members.
Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!
