Who can be a Shareholder in a Company?

The term ‘member’ in the commercial sense means a person who holds shares in a company. The members are also usually referred to as the shareholders of a company. These shareholders/members are the real owners of a company. Collectively, they constitute a limited company as body corporate. Figuring out who can be a member of a company is very important before you register pvt ltd company in India. Especially considering the fact that the ultimate authority regarding the appointment and removal of directors, auditors and other key managerial personnel remain with the shareholders. In fact, the powers of the board are also subject to the control and supervision of the company members. Through this article, you can get a detailed idea of who can be a member of a company. Once you know who can be a shareholder in a company, the incorporation process can commence easily.

Meaning of ‘member’ in a company

Section 41 of the Companies Act, 2013 divides the members in a company in three different classes. These three classes of members include:

• People who subscribe to the memorandum of the company; 
• Any other person who has agreed in writing and registered their name to be a member in company; and 
•  Every person holding an equity share of a company and who is beneficial owner in the depository.

Who can be shareholder in a company?

As stated above, the members of a company are also frequently referred to as its shareholders. During the company registration process, the members must be defined prior hand to commence with the other requirements. Under the Companies Act 2013, any individual, body corporate or association can become a shareholder of a company. Further, the company law does not provide for any disqualifications which can refrain any person who can be a shareholder in a company. 

It further appears that any person who is competent to enter into a valid contract can be a member in a company. When the members subscribe to the shares of a company, a contract between the company and a person who can be a member is formed. 

However, the charter documents of the company, ie., its MOA and AOA may put certain restrictions on who can be a shareholder in a company. This is the sole decision of the first subscribers of the company. Since they prepare and submit the company’s charter documents. In the absence of any express provisions regarding the capacity of someone who can be a director in a limited company, the provisions of Contract Act, 1872 apply. Further, the prevailing laws and judiciary set out basic principles on the various types of members of a company. Let’s dive into them. 

Can a company be a shareholder in another company?

A company may become a member of another company  if it is authorized by its MOA or AOA, or if it takes the shares of another company by way of a compromise or an arrangement. A company cannot, however, buy its own shares. Besides, a subsidiary company cannot own the shares of its holding company. Shareholders Agreement between the shareholding company and the original members of the company will help in this scenario,

An LLP as a member of a pvt ltd company

An LLP or a Limited Liability Partnership is a hybrid business model with the benefit of being a body corporate as a company and taxation as a partnership. If the LLP agreement allows, the LLP can become a member of a pvt ltd company by subscribing to its share capital. LLP registration in India is gradually becoming more and more popular by the day. 

Can a HUF become a shareholder of company in India?

A Hindu Undivided Family is an artificial person but not a juristic person in all aspects of law. Hence, the HUF in itself cannot become a shareholder of Indian Company. However, the Karta of HUF can hold shares of a company, on behalf of the HUF. 

Partnership Firm as a member of a company

A partnership firm is an informal business structure that does not have a separate legal existence. Hence, without the boon of perpetuity and separate legal existence, the partnership firm cannot become a member of a limited company. However, the patterns of a partnership firm can become the shareholders of a company. 

Joint Holders as shareholders in a company

Two or more individuals can jointly hold the shares of a limited company in India. However, as per the companies act, 2013 in the case of a public company every joint shareholder is counted as a separate member but in the case of a private company, joint holders are treated as a single member. 

Can a Registered Society become a company shareholder? 

A society that has been duly registered as a ‘society’ under the Society Registration Act, 1860 is also governed by its MOA and AOA. So, if these charter documents authorize it, then, registered society can become a company shareholder. 

Insolvent person as company member

An insolvent may be a member of the company although the beneficial interest in his shares will be with the Official Receiver. He does not cease to be a member of becoming insolvent unless provided otherwise by the articles of association. 

Can a minor become a shareholder?

A minor or lunatic, being incompetent to enter into a contract cannot become a member of a company. But a guardian can become a shareholder on behalf of the minor. If directors, in ignorance of the fact of minority, allot shares to a minor, and enter his name on the register of members, the company can reject the allotment and remove his name from the register, when the fact of applicant’s minority comes to its information.  

The minor can also repudiate the allotment of shares at any time during his minority. In either case, the company will repay to minor all money received from him for  the allotted shares, and whether or not the minor should restore to the company the benefits he might have derived from the shares would be for the court to decide given the facts and circumstances of each case. 

Can a Foreign National become a member of a company?

A foreign national or non-resident Indian can become a member of an Indian company subject to Foreign Direct Investment regulations and FEMA guidelines. 

Also Read: Who can be a company director in India?

State or Central Government

Any department of the state government or central government can become a shareholder of a company through the approval of the President of India or the Governor of a state. The Act states that either President or Governor could nominate any person to be present at any meeting of the company.  

Conclusion

There are various kinds of entities and individuals that can become the shareholders of a company. The principles given in this article will help you figure out who can be a member in your company. So read carefully before you make any final decisions. Further, in case of any queries, feel free to connect with the experts at LegalWiz.in!