Membership of sec.25 co.

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Khushbu (Querist)
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08 January 2013 Can an employee be admitted as member in a company limited by guarantee?

If yes,than can they be paid their salary as the articles say that the income cannot be distributed among the members...

Khushbu

Khushbu (Querist)
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09 February 2013 Please reply experts...

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 Yes, an employee can be admitted as a member in a company limited by guarantee, but there are some important considerations to understand regarding such membership and its implications, especially concerning salary payments.

### 1. **Membership in a Company Limited by Guarantee**

- **Nature of Membership:** In a company limited by guarantee, members typically do not receive dividends or share in the profits. Instead, they guarantee a nominal amount to be paid in the event of the company being wound up. This type of company is often used for non-profit organizations, clubs, or associations.

- **Eligibility:** An employee can be admitted as a member of a company limited by guarantee if the company's Articles of Association allow for it. There are no legal restrictions preventing employees from being members. However, the company's governing documents (Articles of Association) must explicitly state the rules regarding membership.

### 2. **Payment of Salary to Members**

- **Prohibition on Distribution:** As per the Articles of Association of a company limited by guarantee, the income or profits of the company cannot be distributed among its members. This means that members do not receive dividends or share in the financial benefits of the company’s success.

- **Salary Payment:** Despite this prohibition, employees who are also members can still receive salaries for their services. The restriction on distributing income among members does not prevent the company from paying salaries or wages to its employees. Salary payments are considered remuneration for services provided and are separate from profit distribution.

- **Documentation:** The company should ensure that its Articles of Association are clear on the separation between member benefits and employee compensation. The Articles should allow for the payment of salaries to employees, even if the members cannot receive any share of the company's profits.

### Summary of Key Points:

1. **Membership:** Employees can be members of a company limited by guarantee, provided the Articles of Association permit it.

2. **Salary Payment:** Members who are also employees can be paid salaries. The restriction on profit distribution to members does not affect the payment of salaries to employees.

3. **Articles of Association:** Ensure that the company’s Articles of Association clearly define the terms of membership and the provisions for employee salaries. It should be clear that salaries are an operational expense and not a distribution of profits.

4. **Legal Compliance:** Verify that all practices comply with relevant laws and regulations. Consult with a legal advisor or company secretary to ensure compliance and proper documentation.

### Practical Steps:
- **Review the Articles of Association** to confirm that they allow for employees to be paid salaries and do not conflict with the prohibition on profit distribution.
- **Ensure Clear Documentation** of the salary arrangements and roles to avoid any conflicts or misunderstandings.
- **Consult Legal Advisors** for guidance on structuring membership and salary payments in compliance with legal requirements.

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