Minor shareholder
Dinesh Malik
(Querist) 24 July 2009
This query is : Resolved
In a private limited Company, there are 3 sharholders - A, B and C.
A is adult and B & C are his two minor daughters (under his guardianship). Is is ok?
Whether this fulfils the requirement of minimum two shareholders in a private ltd. company?
A V Vishal
(Expert) 24 July 2009
Dear Malik
The company act doesnot prescribes any qualifications to hold shares, hence, the two minor daughters are eligible to hold the shares and there is absolutely no problem as it fulfills all the requirements.
Nehal
(Expert) 24 July 2009
All the shareholders should be major, as they should have contractual capacity to subscribe to the memorandum.
Guest
(Expert) 24 July 2009
Minor or trust as members
Companies Amendment Act, 1960.-Recommendation of Company Law Committee.-The word
'agrees' used in sub-section (2) was substituted by the words 'agrees in writing' by the Companies
(Amendment) Act, 1960, based on the recommendations of the Company Law Committee, thus:
"It has been suggested that a specific provision should be made that minors cannot be members of a
company. Under the Contract Act a minor is incapable of contracting and membership involves a
contractual relationship between the company and the members as well as the members inter se. No
further provision is necessary,
Under section 117 of the English Companies Act no notice of any trust, expressed, implied or
constructive, can be entered in the register of members or debenture holders or be receivable by the
Registrar. Section 153 of our Act is to the same effect. In a few cases, the Act has recognised the
holding of shares in the names of a nominee or nominees of the real owner [See sections 4(3), 42,
49, 226(3) and 307]. It would be risky for a company to register transfers of shares and pay
dividends to the transferees if it was obliged to take notice of equitable interests in its share capital
and it was eventually proved that the transfers were in breach of trust. A trustee of shares who is on
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the register of members is personally liable to the company for any calls or other obligations
attaching to the shares. This has been the settled law for a long time. We are, therefore, unable to
accept the suggestion that the name of a minor who has inherited shares as heir or legatee should be
entered in the register as the holder of the shares. There would, however, be no objection to having
the name of the certificated guardian of a minor who has inherited the shares or the executor of a
probated will, under which a legacy of shares is given to a minor, being entered in the register and
dividends being paid to him.
Guest
(Expert) 24 July 2009
Minor as member
The Company Law Board held in Nandita Jain v. Bennett Coleman & Co. Ltd., Appeal No. 27 of
1972, dated 17-2-1978, "Selected Decisions of the Company Law Board", 3rd Edn. 37 (published
by Government of India) that a minor applying (through her natural guardian) for being registered
as a member of a company, was entitled to be so registered if the shares were fully paid up. The
Board relied upon observations made in PENNNQT,ON'S COMPANY LAW, 2nd Edition, and in
BUCKLEY ON THE COMPANIES ACTS, 12th tion and observed that:
(1)the minor's ability- to exercise some of the rights of a member under the Act and under the
Memorandum and Articles is not material in this context;
(2) the contractual obligation between a member and the company or between members inier
se under section 36 of the Act is also not relevant in this context
;
(3)where the shares are fully paid up no personal covenant to pay for the shares arose.
Under the Indian Law a minor's contract is void. Observations made by authors in the context of the
English Law of Contract, under which such a contract is voidable are of little value. Under section
41(2) of the Companies Act, 1956, a member is defined as a person who 'agrees in writing' to
become a member. The company, therefore, cannot register a person unless the person desiring to
be a member applies in writing : a minor cannot agree to be a member of the company.
The CLB'S order relied upon two judgments of the Punjab High Court in Diwan Singh v. Minerva
Films Ltd., (1958) 28 Com Cases 191 (Punj) and Dovan Singh v. Minerva Films Ltd., (1959) 29
Com Cases 263 (Punj) in which there is no reference to section 30 of the Indian Companies Act,
1913, nor to section 41(2) of the Companies Act, 1956, as giving rise to contractual obligations. The
Board also relied upon its earlier decision in, R. Balaraman v. Buckingham and Carnatic Co. Ltd.,
(1969) 1 Comp LJ 81 (CLB), where the Board directed the company to register a transfer of fully
paid-up shares in favour of the minor daughters of the petitioner. The Board, in arriving at its
decision held that the provisions of S. 11 of the Indian Contract Act would not affect the transfer
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since the shares were fully paid. The Board further held that the transferee could sign as guardian of
the minor daughters and that the minors themselves would be the owners of the shares. The
guardian would not be the trustee and S. 153 would not apply. The minor's names cannot be entered
on the register of members. The guardian's name may be entered on the register of members and he
can give notice of trust to the company under S. 187-C (which was enacted in 1974) after these
judgments were pronounced. But as far as the company is concerned only the guardian will be the
shareholder. The CLB's view is also contrary to the decision in Dalmia Jain Airways Ltd. v. Saroj
Rani, ILR (1956) Punj 41.
In Karnataka Theatres Ltd. Re (2000) 100 Com Cases 124 : (2000) 2 Comp LJ 130(2000) 36 CLA
245 (CLB-SB), following the CLB decision in R Balaroman (supra) it has been again held that
there is nothing in the Companies Actprohibiting a minor from becoming the member of a
company. Section 41(2) read with Regulation 19(1) of Table A indicates that the agreement in
writing can be made by the guardian on behalf of minor. It will not be a case of trust because
minor's name would be entered in the register. He would incur no liability because the shares were
fully paid. The shares in question were obtained by transfer. Gautam R. Padival (Minor) v.
Karnataka Theatres Ltd., (2000) 37 CLA 244: (2000) CLC 1765 (CLB-SB).
When a guardian of a minor applies to be a member of a company, the company cannot enter the
name of a minor in the share register, because a person's name may be registered as a shareholder
only if he agrees in
Guest
(Expert) 24 July 2009
The above would b helpful in this issue.
Manish Singh
(Expert) 03 August 2009
there is no bar for a minor to hold shares in a company. but for being a director, it may be disputable.
