Shareholding by Minors in India
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.
