Partnership firm as a member

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

22 January 2013 Hello Experts,

XYZ Associates is a partnership firm having 7 partners.

1. How can XYZ be a Member in a Company? Whether all 7 partners to be entered as Joint Holders?

2. Whether in Register of Members, its name would be mentioned? (Like Minor as "For XYZ..."?)

3. Is there any limit on no. of persons for Joint Shareholding?

4. If after making above firm as member can a Company take loans/deposits from it u/s 58A? Will it be exempted?

Thanks in advance.....

Ajay Mishra

Ajay Mishra (Expert)
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23 January 2013 Hi

Partnership firm
Section 41(2) provides that only a person can be a member of a company who has agreed in writing to become a member and whose name is entered in the Register of members.
As per Department's Circular No. 4/72, dated 9-2-1972, it has been clarified that "a firm" not being a person, cannot be registered as a member of a company.
However, section 25(4) of the Act, provides that when the company is licenced under section 25, a firm may become a member of any association or such company licensed under section 25. In such case the membership of the association or company shall cease upon the dissolution of the firm. However, partners of the dissolved firm may continue to be members of the association or company in their individual capacities.

Ajay Mishra

Ajay Mishra (Expert)
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23 January 2013
Shareholding in joint names
If more than one person jointly apply for and are allotted shares in a company, each one will be regarded as a member. In the case of joint-applicants, they can insist on having their names registered in such order as they may require. However, according to Department's Letter No. F1/24/SE/80, dated 5-9-1980, where the change in the order of names is required in respect of a part of the holding, execution of fresh transfer deed will be required. The following points should be considered in the case of joint shareholders:
(i) Joint shareholders shall be counted as one member in case of counting for quorum for a voting and for requisitioning meeting under section 169.
(ii) All the documents, notices and dividend warrant, etc., will be served on the first named joint holder and it will be deemed as sufficient compliance unless the instructions in writing to other effect have been given to the company.
(iii) A proxy will be appointed by all of them acting jointly unless regulation 57 of Table 'A' has its effect. It says that the vote of senior or first joint shareholder, whether in person or by proxy, shall be accepted to the exclusion of the votes of other joint shareholders. So it becomes clear that senior or first joint holder can appoint a proxy all by himself.
(iv) In case of transfer of shares by joint holders, the transfer will be effective and valid only if it is made by all the joint shareholders.
(v) In case of transmission of shares by operation of law, section 45 of the Indian Contract Act provides that right shall devolve on the representatives of the deceased person jointly with the survivor or survivors.
(vi) All the joint shareholders shall be jointly and severally liable to pay unpaid calls to the company.

Ajay Mishra

Ajay Mishra (Expert)
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23 January 2013
A Minor

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].

Querist : Anonymous

Querist : Anonymous (Querist)

23 January 2013 Thanks much for your detailed explanation sir. Kindly throw some light on 4th question which is;

Whether a Private Company, after making all the partners of a firm as joint shareholders, can take loans/deposits from the Firm? Will it be exempted u/s 58A??

Ajay Mishra

Ajay Mishra (Expert)
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23 January 2013
Deposits from Partnership firm
Acceptance of deposit by a private company from a partnership firm:—
(a) If all partners of the firm are also the directors of a private company, such private company can accept unsecured loans/deposits from the firm. This case will be covered under rule 2(b)(ix) i.e. such a deposit is an exempted deposit.
(b) If all partners of a firm are not the directors of a private company i.e. some of them are the directors and remaining are the shareholders, still private company can accept deposit from the firm.
(c) If all partners of a firm are not the directors of a private company i.e. some of them are the directors, some of them are shareholders and remaining are relatives of a partners who is a shareholder. This case is not covered under rule 2(b)(ix).
(d) Where some partners are directors in a private company and remaining partners are not their relatives, private company cannot accept deposits from such firm.

Querist : Anonymous

Querist : Anonymous (Querist)

23 January 2013 In my case, all the partners are joint shareholders/members of the company then??? Its not specified in above.

Ajay Mishra

Ajay Mishra (Expert)
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23 January 2013 yes, to cover, one should be director of that company.

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