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;
Minor’s Capacity to Become a Shareholder of a Company
Before diving into learning the capacity of a minor to become a shareholder agreement, it might be interesting to check what the Indian Contract Act, of 1872 discusses about the contractual capacity of a minor. As per the provisions of this Act, a minor is not intelligible to consent to a contract and thus cannot enter an enforceable contract. As per Section 3 of the Indian Majority Act, 1785, a minor is a person who has not yet attained majority or the age of eighteen years. As per Indian Contract Act, 1872, such a person (minor) cannot enter into any agreement. Therefore, a minor cannot enter into a contract. However, Companies Act, 2013, states that any person, irrespective of age, can be appointed as a director and hold shares in the company.
Drawing the same inference here, it can be stated that minors cannot become a shareholder by purchasing shares under a share purchase agreement. Though minors cannot contract to become shareholders of a company, minors can acquire shares of a private limited company from an adult as a gift, thus making them the shareholders of the company. Here the shares are transferred to the guardian of the minor child, wherein the guardian will act as a Trustee until the minor child reaches the age to have the capacity to contract. Therefore, it can be said that a minor can very much become a shareholder of a company.
Likewise, minors are not vested with voting powers in a company, even if they are actual shareholders in the company. Also, they won’t be held liable if the company is yielding to debts. However, the minor shareholders have the right to receive their dues if the company goes into liquidation.
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
Participation of minors in Limited Liability Partnership
Individuals can take office as normal or designated partners in a partnership firm. The partners of an LLP firm operate by virtue of a written agreement that delineates their rights and duties as a partner of the firm. Just like how a Director of the company is expected to hold a DIN (Director Identification Number), a designated partner should also hold a DPIN (Designated Partner Identification Number). In the case of a minor, neither is it possible to enter into an agreement nor is practicable to hold a DPIN. Further, a designated partner is someone who regulates and governs the activities of an LLP, which a minor will not be in a position to perform.
Nonetheless, a minor may be admitted into a partnership merely for the purpose of sharing the profits. The minor will not be responsible for the activities of the company. On reaching maturity, the minor can opt whether or not to continue as a partner in the firm. A time period of 6 months is usually given to assess the intellectual strength of such individuals who are stepping up to be a partner once they reach their apt age.
Participation of Minors in Private Limited Companies
In a private limited company, an individual can act as a shareholder or a director. To be a director of a company, the said person should possess a valid Director Identification Number (DIN), which can be obtained only after the person attains majority age. Since a minor cannot hold a DIN, it is not possible for a minor to take the position of a Director. The shares of a company can be held only when it is gifted to the minor by an adult who has the capacity to contract under the Indian Contract Act, 1872.
FAQs
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.
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.
