Who can become a shareholder?

Shareholders are otherwise known as the members of a company. Under the Companies Act, 2013, any person can become a shareholder and a person could mean an individual, body corporate, an association or a company irrespective of its incorporation. In this article, we look at persons eligible to become a shareholder of an Indian company.

Minor

A minor is not qualified to enter into an agreement and thus a minor's contract is considered invalid. A minor has no legal ability to enter into a bond or authorize someone else on his behalf. However, under the Hindu Law, the accepted guardian is permitted to enter into a bond on behalf of the minor and such a contract would be obligatory. It is equally applicable for sale and purchase of a property. Hence, a guardian can enter into a share purchase transaction on behalf of a minor and the contract would be valid.

Can minor become a shareholder?

Hindu Undivided Family (HUF)

A HUF is considered as an individual person but not a juristic person for all purposes. Shares of a company can be registered in the name of

Karta as "xx HUF". Hence, a HUF can become a shareholder of a company.

Company

A company can become a shareholder in another company subject to the approval of the Board of Directors and passing of a resolution. A sample board resolution for purchase of shares in another company is provided below: “RESOLVED THAT the consent of the Board of Directors of the Company be and is hereby accorded for making an investment not exceeding to Rs._____________ (Amount in words) in the following company in one or more tranches, and on such other terms and conditions as may be mutually agreed between the both parties :

Name of the Company	Amount of Investment

"FURTHER RESOLVED THAT (Name of the person(s) authorized) be and are hereby severally authorized to do all such acts, deeds and things as may be required to give effect to this resolution.”

Partnership Firm

It has been held that a firm is not a person or legal entity distinct from the partners composing it, but merely a collective name of the individuals who are members of the partnership. Hence, a partnership firm is neither a legal entity nor a person. The partners in a partnership firm may become

joint shareholders of a company and their names can be entered into the register of shareholders. A firm can also become a shareholder of a company if the partnership firm is registered.

Trust

A trust which has not been incorporated cannot be treated as a person, hence shares attained by a trust cannot be registered in its name. However, it could be registered in the names of one or more trustees. However, shares can be registered in the name of a trust or co-operative society, if it is registered. Hence, a registered trust or co-operative society can become a shareholder in a company.

Public Office

There is no provision in the Companies Act that shares of a company could be held in the name of a public office. The collector of Central Excise, the secretary to the Government etc. is not a legal entity. Hence, shares cannot be held in the names of such public offices. Thus, public offices are not allowed to become shareholder of a company.

Foreign National / NRI

A foreign national, foreign company or non-resident Indian can become a shareholder of an Indian company subject to

Foreign Direct Investment (FDI) regulations and FEMA guidelines.

State or Central government

Any of the State Governments or the Central government can become a shareholder of a company through the President of India or the Governor of a state. The Act states that either President of India or Governor of a state could nominate any person to be present at any meeting of the company. The person so nominated could be considered as a shareholder of a company entitled to exercise rights and powers in the same manner the President of India or Governor of the State would have discharged as a shareholder.

Limited Liability Partnership

LLP is a lawful organization holding assets and properties in its name. It can become a shareholder of a company by agreeing to the Memorandum of Association of the company or by subsequent purchase of shares in the company.

For assistance with incorporation of a private limited company, contact IndiaFilings.

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Frequently Asked Questions

Common questions about Shareholder Eligibility in Indian Companies.

No, a minor cannot directly hold shares in a company as they are not legally competent to enter into contracts. However, the shares can be held by a guardian on behalf of the minor, making the contract valid under Hindu law.

A HUF is considered an individual entity, and shares can be registered in the name of the Karta (head of the HUF) as "XX HUF". Therefore, a HUF can become a shareholder of a company.

For a company to become a shareholder in another company, it requires approval from the Board of Directors and passing a resolution. The resolution should authorize the investment amount and the person(s) authorized to carry out the necessary actions.

A partnership firm is not a legal entity distinct from its partners. However, the individual partners can become joint shareholders of a company, and their names can be entered in the register of shareholders. A registered partnership firm can also become a shareholder.

An unincorporated trust cannot be treated as a legal person, so shares cannot be registered in its name. However, shares can be registered in the names of one or more trustees. A registered trust can become a shareholder in a company.

No, public offices like government departments or secretaries are not legal entities, and shares cannot be held in their names. They are not allowed to become shareholders of a company.

Foreign nationals, foreign companies, or Non-Resident Indians (NRIs) can become shareholders of an Indian company, subject to compliance with Foreign Direct Investment (FDI) regulations and FEMA guidelines.

Yes, state or central governments can become shareholders of a company through the President of India or the Governor of a state. They can nominate a person to represent them at company meetings and exercise their rights as shareholders.

Yes, an LLP is a legal entity that can hold assets and properties in its name. It can become a shareholder of a company by agreeing to the Memorandum of Association or by purchasing shares subsequently.

The article does not provide details on incorporating a private limited company. However, it mentions that for assistance with incorporation, one can contact IndiaFilings, which seems to be a service provider in that domain.