Cancellation of membership of a shareholder is called Termination or Cessation of membership. On termination of membership, all rights of a member are canceled.
Following are the ways of Termination of membership:
(i) Transfer of shares: Transfer of shares is effected by registering an instrument called Instrument of Transfer with the company. The secretary cancels the name of the seller from the Register of Members and thus the membership of the shareholder is terminated.
(ii) Transmission of shares: Transmission of shares refers to the transfer of shares by operation of law. This is an automatic transfer of a share in the event of death or lunacy of a shareholder. When the transmission of shares takes place, the membership of an original shareholder is terminated.
(iii) Winding up: When a company is winding up, the membership of all the members stands terminated automatically.
(iv) Forfeiture of shares: When a company forfeits the shares on account of non-payment, of calls on shares, shareholder’s shares are forfeited and he ceases to be a member of the company.
(v) Surrender of shares: When a company accepts surrender of partly paid-up shares if permitted by its Articles, the membership of the shareholder is terminated.
(vi) Redemption of Preference shares: When the redeemable preference shares are redeemed (repaid) to the shareholder by the company as per the terms of issue, the membership comes to an end.
(vii) Right of lien as shares: When a shareholder has some obligation towards the company, it is said to be lien on shares by the company. It means shareholders cannot sell their shares until they clear their dues or obligations if any. In case of his failure to pay his dues company cancels his shares and his membership comes to an end.
