Regarding allotment of shares
This query is : Resolved
31 July 2013
Sir,
Whether a Pvt ltd company, can allotted shares to partnership firm, proprietorship, Huf & any pvt ltd company.
If Yes, tell us Procedure &
If No, Please give the reason or example.
Sir, Please resolved my Query as soon as possible.
Whether a Pvt ltd company, can allotted shares to partnership firm, proprietorship, Huf & any pvt ltd company.
If Yes, tell us Procedure &
If No, Please give the reason or example.
Sir, Please resolved my Query as soon as possible.
31 July 2013
Society/Trust as a member
Department Clarification- A society registered under the Society Registration Act, 1860 should not be deemed to be a ‘body corporate’ within the meaning of the section 2(7) of the Companies Act, although such a society can be treated as a ‘person’ having separate legal entity apart from the members constituting it and thereby capable of being a member of a company under section 41(2) of the Companies Act, 1956. [Circular Letter, dated-24-11-1962]
Shares belonging to society held in the name of trustee simpliciter
Department Clarification-In 1957 the Department of Company Affairs was advised that the shares in the company, being the property of a charitable trust, can be held in the name of the trustee. (Extracts from Department’sFile No. 1(43)-PT/67)
Regards
Society/Trust as a member
Department Clarification- A society registered under the Society Registration Act, 1860 should not be deemed to be a ‘body corporate’ within the meaning of the section 2(7) of the Companies Act, although such a society can be treated as a ‘person’ having separate legal entity apart from the members constituting it and thereby capable of being a member of a company under section 41(2) of the Companies Act, 1956. [Circular Letter, dated-24-11-1962]
Shares belonging to society held in the name of trustee simpliciter
Department Clarification-In 1957 the Department of Company Affairs was advised that the shares in the company, being the property of a charitable trust, can be held in the name of the trustee. (Extracts from Department’sFile No. 1(43)-PT/67)
Regards
31 July 2013
Who can become a member?
In addition to an individual person, the following may also become a member of a company:
3.1 A company
A company can become a member of another company. The company must have powers under its Memorandum & Articles to make investment in other bodies corporate.
3.2 A registered co-operative society
A registered co-operative society may become a member of a company, provided it is recognised as a separate legal entity and a society can be treated as a 'person' having separate legal entity apart from the members constituting it and thereby capable of becoming a member of a company under section 41(2) of the Act.
3.3 A Non-Resident Indian [NRI]
Without the general or special permission of the Reserve Bank of India, a person, who is not resident in India (even if he be an Indian citizen), cannot become a member of a company registered in India, as no shares can be issued or transferred to him without general or special approval of the RBI.
3.4 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].
3.5 HUF
Hindu undivided family is represented by its Karta. The Companies Act does not prohibit membership of Hindu Undivided Family. In case of HUF, the shares can be registered in the name of 'A' as Karta of HUF.
3.6 Registered Trade Union
It was held in the case of All India Bank Officers Confederation v Dhanlakshmi Bank Ltd. (1997) 90 Comp Cas 225 that a trade union registered under the Trade Union Act, can be registered as a member and can hold shares in a company in its own corporate name.
Who can become a member?
In addition to an individual person, the following may also become a member of a company:
3.1 A company
A company can become a member of another company. The company must have powers under its Memorandum & Articles to make investment in other bodies corporate.
3.2 A registered co-operative society
A registered co-operative society may become a member of a company, provided it is recognised as a separate legal entity and a society can be treated as a 'person' having separate legal entity apart from the members constituting it and thereby capable of becoming a member of a company under section 41(2) of the Act.
3.3 A Non-Resident Indian [NRI]
Without the general or special permission of the Reserve Bank of India, a person, who is not resident in India (even if he be an Indian citizen), cannot become a member of a company registered in India, as no shares can be issued or transferred to him without general or special approval of the RBI.
3.4 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].
3.5 HUF
Hindu undivided family is represented by its Karta. The Companies Act does not prohibit membership of Hindu Undivided Family. In case of HUF, the shares can be registered in the name of 'A' as Karta of HUF.
3.6 Registered Trade Union
It was held in the case of All India Bank Officers Confederation v Dhanlakshmi Bank Ltd. (1997) 90 Comp Cas 225 that a trade union registered under the Trade Union Act, can be registered as a member and can hold shares in a company in its own corporate name.
31 July 2013
Who cannot become a member?
1 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.
Who cannot become a member?
1 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.
31 July 2013
PROCEDURE FOR TRANSFER OF SHARES OF PRIVATE COMPANY
Generally articles contain the detailed provisions as regards the procedure for transfer of shares. Usually following steps shall be followed by a private company to give effect to the transfer of shares:—
(i) Transferor should give a notice in writing for his intention to transfer his share to the company.
(ii) The company in turn should notify to other members as regards the availability of shares and the price at which such share would be available to them.
(iii) Such price is generally determined by the directors or the auditors of the company.
(iv) The company should also intimate to the members, the time limit within which they should communicate their option to purchase shares on transfer.
If none of the members comes forward to purchase shares then the shares can be transferred to an outsider and the company will have no option, other than to accept the transfer.
(V) the transferor will submit the following documents with company:
(a) Original Share certificate
(b) Transfer deed (Form-7B) properly executed with stamp duty of proper amount.
© any other documents relating thereto.
It is to be noted that any transfer of shares to an outsider without complying with the procedure as specified in the articles for effecting transfer of shares will not be operative against the company. Even in the case where the procedure prescribed by the articles was not followed and such failure was not due to any fault on the part of the selling shareholder, the transfer to an outsider was held not to be effective.
Transfer of shares without consent of holder of shares and without prior sanction of board of directors as required under articles of association of a private company concerned could not be held to be valid. [John Tinson Co. (P) Ltd. v Mrs. Surjeet Malhan (1997) 88 Comp Cas 750 (SC)].
PROCEDURE FOR TRANSFER OF SHARES OF PRIVATE COMPANY
Generally articles contain the detailed provisions as regards the procedure for transfer of shares. Usually following steps shall be followed by a private company to give effect to the transfer of shares:—
(i) Transferor should give a notice in writing for his intention to transfer his share to the company.
(ii) The company in turn should notify to other members as regards the availability of shares and the price at which such share would be available to them.
(iii) Such price is generally determined by the directors or the auditors of the company.
(iv) The company should also intimate to the members, the time limit within which they should communicate their option to purchase shares on transfer.
If none of the members comes forward to purchase shares then the shares can be transferred to an outsider and the company will have no option, other than to accept the transfer.
(V) the transferor will submit the following documents with company:
(a) Original Share certificate
(b) Transfer deed (Form-7B) properly executed with stamp duty of proper amount.
© any other documents relating thereto.
It is to be noted that any transfer of shares to an outsider without complying with the procedure as specified in the articles for effecting transfer of shares will not be operative against the company. Even in the case where the procedure prescribed by the articles was not followed and such failure was not due to any fault on the part of the selling shareholder, the transfer to an outsider was held not to be effective.
Transfer of shares without consent of holder of shares and without prior sanction of board of directors as required under articles of association of a private company concerned could not be held to be valid. [John Tinson Co. (P) Ltd. v Mrs. Surjeet Malhan (1997) 88 Comp Cas 750 (SC)].
31 July 2013
Procedure for Transfer of shares of the Company:
1. After receiving Transfer Deed(Instrument of Transfer), Share Certificate and other documents, if any.
2. Check all documents is proper and eligible to register for transfer.
3. Call Board Meeting
4. At Board Meeting register the Transfer and made entry in the Register of Members and Register of Transfer.
5. Return the Share Certificate after making entry of transfer therein within 2 months.
6. Make entry in the minutes of Board Meeting.
7. The detail of Transfer from last AGM till the date of AGM should be submitted in Annual Return to ROC in Form-20B.
Procedure for Transfer of shares of the Company:
1. After receiving Transfer Deed(Instrument of Transfer), Share Certificate and other documents, if any.
2. Check all documents is proper and eligible to register for transfer.
3. Call Board Meeting
4. At Board Meeting register the Transfer and made entry in the Register of Members and Register of Transfer.
5. Return the Share Certificate after making entry of transfer therein within 2 months.
6. Make entry in the minutes of Board Meeting.
7. The detail of Transfer from last AGM till the date of AGM should be submitted in Annual Return to ROC in Form-20B.
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