Shareholding By Minors In India

The shareholders of a company are the owners of a company owning equity shares of a company. Shareholders can also be referred to as "members" of a Company. The Companies Act, 2013 with the following definition: "Member”, in relation to a company, means:

the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members;
every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;
every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository;

In this article, we look at the regulations for Shareholding By Minors In India.

Minor Shareholder during Incorporation

As per Companies Act, 2013, all subscribers to the Memorandum of a company are deemed to become members of the

company on its registration and is entered in the register of members. The MOA subscriber sheet is also considered a contract to subscribe to the shares of the company on incorporation. However, as per law, a Minor has no ability to consent to a contract and thus cannot enter into an enforceable contract. Hence, a minor cannot subscribe to the shares of a company during incorporation by agreeing to become a subscriber.

Minor Shareholder post Incorporation

Another way to become a shareholder of a company is post incorporation by purchasing shares of a company. Again, any person who is a Minor has no ability to consent to a contract. Hence, minors cannot enter into any share agreement for purchase of shares or contract to purchase shares.

Becoming a Minor Shareholder

A minor cannot contract to become a shareholder of a company. However, a minor can be gifted shares of a private limited company by an adult, thus making him/her a shareholder of a company. In such cases, the shares of a company are transferred to the Guardian of the Minor, which will be held by the Guardian as a Trustee until the Minor reaches an age wherein he/she can enter into legal contracts.

Can a Minor become a shareholder of a company?

Yes, a minor can become a shareholder of a company, if the shares of a company are gifted to the minor. As Minors cannot enter into a legally binding contract, they cannot become a shareholder by purchasing shares under a share purchase agreement.

Can a Minor become Director of a Company?

In India, any person becoming a Director of a company is required to obtain

Director Identification Number or DIN. To obtain DIN, the person must be over the age of 18. Hence, a minor can never become the Director of a Company until he/she reaches majority. Further, as per law, Minors cannot enter into legally enforceable contracts. Hence, conceptually also, a Minor is disallowed from becoming the Director of a company.

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Frequently Asked Questions

Common questions about Minor Shareholding in India: Regulations & Guidelines.

No, a minor cannot directly subscribe to shares of a company during its incorporation. According to the Companies Act, 2013, a minor lacks the legal capacity to consent to a contract, and subscribing to the Memorandum of Association (MOA) is considered a contract. Hence, a minor cannot become a subscriber to the MOA and directly subscribe to shares during incorporation.

A minor can become a shareholder of a company if the shares are gifted to the minor by an adult. Since a minor cannot enter into legally binding contracts, such as a share purchase agreement, the only way for a minor to become a shareholder is by receiving shares as a gift from an adult.

No, a minor cannot enter into a share purchase agreement to buy shares of a company. As per the law, a minor lacks the legal capacity to consent to a contract, and a share purchase agreement is considered a contract. Therefore, a minor cannot purchase shares directly through a share purchase agreement.

When shares are gifted to a minor, the shares are transferred to the guardian of the minor. The guardian holds the shares as a trustee on behalf of the minor until the minor reaches the age of majority and can enter into legal contracts.

No, a minor cannot become a director of a company in India. To become a director, an individual must obtain a Director Identification Number (DIN), which requires the person to be at least 18 years old. Additionally, minors lack the legal capacity to enter into contracts, which is a fundamental requirement for being a director.

In India, a person must be at least 18 years old to become a director of a company. This is because obtaining a Director Identification Number (DIN), which is mandatory for becoming a director, requires the individual to be above the age of 18.

No, a minor shareholder cannot attend and vote at company meetings. Since a minor lacks the legal capacity to contract, the guardian of the minor shareholder attends and votes at company meetings on behalf of the minor.

No, there is no specific limit on the number of shares that can be gifted to a minor. However, the gifting of shares to a minor should comply with applicable laws and regulations, such as those related to taxation and anti-money laundering.

No, a minor shareholder cannot directly transfer or sell the shares held by them. Since a minor lacks the legal capacity to contract, the guardian of the minor shareholder holds the shares as a trustee and is responsible for any transfer or sale of the shares on behalf of the minor.

When a minor shareholder reaches the age of majority (typically 18 years old in India), the shares held by the guardian as a trustee are transferred to the individual, who can then exercise their rights as a shareholder directly, including attending meetings and voting.