Who can Become Shareholders in private limited company

  • August 09, 2016
  • Dushyant Sharma
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Now understand who can become shareholders in the company -

Company: Company is a legal person and we also know that company can have assets on its name, So, there is no doubt about the fact that company can become shareholder in the company if it is authorised by its articles if association (AOA) and memorandum of association (MOA).

But one thing you must remember that you a company can not buy its own shares for investment purpose because that amounts to buy back which is separate case of discussion.

Partnership Firm: Partnership firm is also not allowed to become shareholder in the company because partnership is not considered separate legal entity from its partners.

Hindu undivided Family (HUF): An HUF can become member in the company on its own name. The reason is same as that of partnership firm. HUF is not a separate legal entity but HUF can purchase shares through Karta. In other words, Karta of an HUF can become shareholder in the company, not an HUF itself.

Foreigner: as such there is no issue with respect to the foreigner, if he holds share in the company but there are certain guidelines and rules which he must observe while investing in the company.

An Insolvent person: An insolvent person can not become members in the company. But a person who becomes insolvent after becoming member in the company then he may remain shareholder in the company. Further, his beneficial interest is transferred to the official receiver

Joint membership: Basically this term signifies that having joint ownership in the beneficial interest of shares. When 2 or more person holds the joint membership in the company then it is called or referred as joint membership. It is allowed under the companies act to have a joint holder over the company's shareholding.

Limited Liability Partnership(LLP): Unlike the partnership firm, LLP can be shareholder in the company because LLP is considered as separate legal entity in the eyes of Law.

Minor: Before going into the details, let's understand who can enter into contract. Section 11 of the Indian Contract Act defines that every person who is entering into the contract must be competent to contract. Competency to enter into contract has been defined as follows:

  • A person must attain age of majority;
  • He is of sound mind; and
  • He is not disqualified from entering into any contract under any law.

From the above criteria, it is very clear that minor can not become shareholder in the company due to his incapacity. Even not only under the companies Act, even any contract with minor under any law is null and void.

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Dushyant Sharma
Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.

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