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Querist : Anonymous

Querist : Anonymous (Querist)

27 January 2010 Mr A and Mr. B are directors of ABC pvt Ltd.
They both also have a partnership firm m/s Xyz.

They have purchased shares in ABC pvt Ltd on behalf of their partnership firm.

Now the question is that, in whose shareholding, the partnership shares be included.

Please help..

CA Amit Kumar Hallen

CA Amit Kumar Hallen (Expert)
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27 January 2010 The shares will be in the name of the partnership firm and not partners. The Firm has separate identity other than the partners and hence the shares will be in the name of firm.

Ankur Garg

Ankur Garg (Expert)
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27 January 2010 You are saying that partner purchased shares in the name of firm which is incorrect. A firm can not be a member of a company.

So shares purchased by the partners is their personal property and not the property of firm.

Querist : Anonymous

Querist : Anonymous (Querist)

27 January 2010 But as per me partnership firm cannot become a member of the company. Also the same is as per clarification given by the department.The Department of Company Affairs has in its Circular No. 4/72, dated 9-3-1972 expressed similar view stating that a firm, not being a person, cannot be registered as a member of a company except where the company is licensed under section 25. In another Circular No. 5/75 (8/18/75-CL-V), dated 31-3-1975 issued under section 187C of the Act the Department has expressed similar view.

Querist : Anonymous

Querist : Anonymous (Querist)

27 January 2010 Ankur sir, the shares were purchased in the joint name of both the partners. And the firm was the beneficial owner

Ankur Garg

Ankur Garg (Expert)
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27 January 2010 Simply name of partner should be entered in the register of member of the co. as a member in their individual capacity.

Querist : Anonymous

Querist : Anonymous (Querist)

29 January 2010 Sir but the payment for the shares came from the bank account of the Partnership firm..

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2025 This is a great and important question. Here's a clear breakdown of how this situation should be handled legally and practically under Indian company law:

🔍 Situation Summary:
Mr. A and Mr. B are directors of ABC Pvt Ltd.

They also own a partnership firm, M/s XYZ.

Shares in ABC Pvt Ltd were purchased in the joint names of Mr. A and Mr. B, but payment came from the partnership firm's bank account.

The firm is intended to be the beneficial owner, but the legal ownership is with A and B.

🧾 Legal Position:
A partnership firm is not a legal person under the Companies Act, 2013 (or earlier Act, 1956), and cannot hold shares in its own name.

The firm has no separate legal entity status from its partners.

Hence, it cannot be entered as a member in the Register of Members of a company.

Therefore, shares must be held in the individual names of Mr. A and Mr. B, either:

Jointly, or

Separately, as the case may be.

Since the payment came from the firm's account, it may be inferred that the partnership firm is the beneficial owner.

However, under the Companies Act:

Only natural/legal persons can be registered members.

Beneficial ownership can be disclosed via Form MGT-6, and the registered owner must file Form MGT-4.

✅ What Should Be Done:
To legally reflect this structure and avoid future complications:

Step 1: Record Ownership Properly
Shares must be issued and reflected in the Register of Members in the names of Mr. A and Mr. B (not in the firm's name).

This makes them the registered owners.

Step 2: Declare Beneficial Ownership (Important)
If the partnership firm is the real investor (economic/beneficial owner), then:

Mr. A and Mr. B (registered owners) must file Form MGT-4 with the company.

The partnership firm (beneficial owner) must file Form MGT-5 with the company.

The company must file Form MGT-6 with the ROC.

This is mandated under Section 89 of the Companies Act, 2013.

⚠️ Consequences of Non-Compliance:
Failure to disclose beneficial ownership may attract penalties under Section 89(5).

It could lead to disputes over control, audit issues, or problems in share transfers later.

Tax authorities or regulatory bodies may also question the transaction if source of funds and ownership are not clearly linked.

🧠 Expert Opinion:
You should:

Treat the shares as held by Mr. A and Mr. B as partners, not the firm.

Disclose the beneficial ownership via proper MCA filings.

Reflect the firm's contribution in the partnership accounts (capital outflow for investment).

Consider entering into a partnership resolution or agreement to clearly document that the shares are held on behalf of the firm.

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