Subscribers to memorandum

This query is : Resolved

CA SAI RAVI PRAKASH (Querist)
Follow

04 June 2015 Hi can any one suggest me on this:

We want to incorporate a pvt company with 2 individuals and a partnership firm (i.e., total 3). My queries are:
1. Can a firm be subscribers to memorandum.?
2. If a firm can't be a subscriber, can a power of attorney of firm can act as a subscriber to memorandum.?
Our intention is firm has to be in connection with membership.

Thank you in advance.

Chetan Patankar

Chetan Patankar (Expert)
Follow

04 June 2015 A partnership firm cannot be a member/subscriber/shareholder of a Company.
It means, Firm cannot buy shares in its name.

CA SAI RAVI PRAKASH

CA SAI RAVI PRAKASH (Querist)
Follow

05 June 2015 Thanks for replying,

Rule 16(2)(g) of company incorporation rule is as below:
"if the body corporate is a limited liability partnership or partnership firm, certified true
copy of the resolution agreed to by all the partners specifying inter alia the authorization to
subscribe to the memorandum of association of the proposed company and to make
investment in the proposed company, the number of shares proposed to be subscribed in the
body corporate, and the name of the partner authorized to subscribe to the Memorandum."

Which can be interpreted as firm can also be a subscriber to memorandum.

Please revert with your openion

Chetan Patankar

Chetan Patankar (Expert)
Follow

05 June 2015 Ravi sir,

You are correct. But a firm can only be a member in sec. 8 Companies i.e. Company with charitable objects. refer Se. 8 (3) of CA 2013.

I thought, in this question, you were referring to a normal Pvt. Ltd. Company with object to earn profits.

If you are referring to a Sec. 8 Company, definitely a firm can be a subscriber to MOA.

CA SAI RAVI PRAKASH

CA SAI RAVI PRAKASH (Querist)
Follow

09 June 2015 Chetan sir,

Now what i thought to do is
I will start a company and firm, in firm i will take one of my neighbour as partner.
1. Pass a resolution to hold shares on behalf of firm on name of neighbour
2. invest in the shares of the company on neighbour name
3. I will ensure that neighbour will get least PSR in the firm.

Then obviously the shares belongs to firm.
Please correct if there any wrong

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
Follow

26 July 2025 Interesting situation! Here's a detailed breakdown and thoughts on your plan:

---

### 1. **Can a Partnership Firm be a Subscriber/Member in a Company?**

* **General Rule:**
A partnership firm is **not a separate legal entity** distinct from its partners. Therefore, **it cannot hold shares in its own name** in a company (except maybe a Section 8 company, which is a non-profit entity under the Companies Act, 2013).

* **Rule 16(2)(g) Clarification:**
The rule you mentioned requires a **resolution from the firm authorizing a partner to subscribe shares on its behalf**. But that doesn’t mean the partnership firm itself becomes a subscriber. The actual shareholder is the **partner authorized**, not the firm.

* **For Normal Pvt Ltd or Ltd Company:**
The subscriber must be a **natural person** or a **body corporate** (a company, LLP, etc.) but **not a partnership firm**.

---

### 2. **Your Proposed Solution:**

* You plan to add a neighbour as a partner in the firm.
* The neighbour will subscribe shares in the company **in his own name**.
* The neighbour holds the shares on behalf of the partnership firm (or you).

---

### Legality & Practical Issues of This Approach:

* **Shares belong legally to the neighbour**, who is the shareholder of record.
* The firm has no direct legal ownership of shares.
* You can have a **trust or agreement** between the neighbour and the firm to treat the shares as beneficially owned by the firm.
* However, this arrangement is **not reflected in the company's register of members**, which will show the neighbour as the legal owner.

---

### 3. **Risks & Considerations:**

* Such arrangement is essentially a **nominee/shareholder agreement**.
* If there is any dispute, the company and authorities will recognize the **registered shareholder (neighbour)** as the owner.
* It's critical to have a **clear, legally enforceable agreement** between the neighbour and the firm about beneficial ownership and rights.
* The shareholder (neighbour) will have voting rights and dividends unless restricted by agreement.

---

### 4. **Better Alternatives:**

* Consider **incorporating an LLP** or a **private limited company** instead of partnership firm, as LLPs and companies are recognized legal entities and **can hold shares**.
* Or, if the firm must be involved, it could be **converted to an LLP**, which can be a subscriber/shareholder in a company.

---

### Summary:

| Point | Comments |
| ------------------------------ | ---------------------------------------------------------------------------------------- |
| Partnership firm as subscriber | Not allowed in normal companies; only Section 8 companies can have firm as member |
| Power of attorney for firm | Doesn’t create ownership; only authorized person acts on behalf but firm can’t be member |
| Nominee shareholder approach | Possible but risky; legal owner is registered shareholder, requires trust agreement |
| Better option | Convert firm to LLP or company to hold shares legitimately |

---

If you want, I can help you draft the nominee/shareholder agreement or suggest the steps for conversion of your firm to LLP.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now