Can minor be initial subscriber in a company
This query is : Resolved
03 December 2013
I want to know if a minor can be a shareholder or initial subscriber in a company.
03 December 2013
Hi
Since the minor is incapable of entering into a contract because contract by a minor is void ab initio and thereby not eligible to agree in writing to be a member, he cannot be entered in the register of members.
It has been clarified by the Department of Company Affairs that when a guardian of a minor applies to be a member of a company, the company can allot shares in the name of guardian, the guardian alone will be regarded as the shareholder by virtue of section 153 of the Companies Act, 1956 and he has to be represented by a registered guardian in his stead. It was held in the case of Fazalbhoy Jaffar v Central Bank of India that where the company transferred shares to a minor without being aware of this fact, the company could repudiate the transfer and the transferor would be liable by being restored to the register of members.
There is no bar in the shares of a company being registered in the name of a minor indicating therein the name of the guardian representing the minor. In India, parents of minor, with a view to provide for their major or minor children, do invest funds in several forms; all such investments are for the benefits of minors. Section 11 of the Contract Act is a beneficial provision enacted to protect the interests of minors. Such beneficial provision should not be used to the detriment of minors. [Gautam R. Pardiral (Minor) v Karnataka Theatres Ltd. (2000) 36 CLA 245 (CLB)].
Where a minor was allotted shares and he received dividend after attaining majority and raised no objection to inclusion of his name in register of members, he could not contend that he was not a shareholder. [Fazulbhoy Jaffar v Credit Bank of India Ltd. AIR 1914 Bom 128].
Since the minor is incapable of entering into a contract because contract by a minor is void ab initio and thereby not eligible to agree in writing to be a member, he cannot be entered in the register of members.
It has been clarified by the Department of Company Affairs that when a guardian of a minor applies to be a member of a company, the company can allot shares in the name of guardian, the guardian alone will be regarded as the shareholder by virtue of section 153 of the Companies Act, 1956 and he has to be represented by a registered guardian in his stead. It was held in the case of Fazalbhoy Jaffar v Central Bank of India that where the company transferred shares to a minor without being aware of this fact, the company could repudiate the transfer and the transferor would be liable by being restored to the register of members.
There is no bar in the shares of a company being registered in the name of a minor indicating therein the name of the guardian representing the minor. In India, parents of minor, with a view to provide for their major or minor children, do invest funds in several forms; all such investments are for the benefits of minors. Section 11 of the Contract Act is a beneficial provision enacted to protect the interests of minors. Such beneficial provision should not be used to the detriment of minors. [Gautam R. Pardiral (Minor) v Karnataka Theatres Ltd. (2000) 36 CLA 245 (CLB)].
Where a minor was allotted shares and he received dividend after attaining majority and raised no objection to inclusion of his name in register of members, he could not contend that he was not a shareholder. [Fazulbhoy Jaffar v Credit Bank of India Ltd. AIR 1914 Bom 128].
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16 January 2014
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