LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Can a partnership firm be a shareholder ?

Shridhi Jain (Company Secretary) (1678 Points)

16 February 2012

Dear members,

Pls tell me, can a partnership firm be a shareholder/member in a company?

If yes, then where is this mentioned in Companies Act and what are the compliances to be complied with in this regard ?

If no, then can a partner hold shares representing the firm and what are the compliances to be complied with in this regard also.

Pls help. Its urgent.

Regards,

Shridhi Jain

Reply
Follow
Share

41 Replies

taran (UNbeatable) (21 Points)
Replied 16 February 2012

A partnership firm can be a member but not a director in the company. Only individual can be director in a company. Partnership firm can become shareholder of a company. Shares will be held in the name of partnership firm.

Smriti Dhawan (Company Secretary ) (347 Points)
Replied 16 February 2012

Section 41 of the companies act 1956, defines a member as a person who has signed the memorandum of association and every other person who agrees in writing to become a member and whose name is entered in the register of members.

A partnership firm, being not a person in the eyes of law, cannot be a member of a company. However, a firm can purchase shares of a company in the individual names of its partners as joint shareholder.

2 Like

Ajay Mishra (Company Secretary) (74332 Points)
Replied 16 February 2012

A partnership firm is not a legal person and as such it can not, in its own name, become the member of the company. However, its partners may become joint shareholders of the company and their name be entered in the register of members. However, it can become member of section 25 company.

Regards

Ajay Mishra

3 Like

Aravind.. (CA) (1262 Points)
Replied 16 February 2012

A partnership firm can hold shares in a company as an investment. But shares can be only in the name of partners.

Ajay Mishra (Company Secretary) (74332 Points)
Replied 17 February 2012

No Arvind, a parnership firm can not invest in company, however partners can do so.

Regards

Shridhi Jain (Company Secretary) (1678 Points)
Replied 17 February 2012

Thanks dear members for your replies.

Pls tell me is there any legal compliance to be complied with in this regard? Sec. 187C is to be complied, wat do u think? any other compliances?

Actually shares have already been transferred in the name of the firm and money is also transferred by the firm to the respective company. Wats the way out?

Ajay Mishra (Company Secretary) (74332 Points)
Replied 17 February 2012

Actually the whole transaction is in valid.

Regards

CS Rajveer Rai, Gurgaon (CS) (646 Points)
Replied 17 February 2012

187C is not applicable as it is for when a company is a beneficial holder.

Further you can rectify your register of holding pass a board resolution for that and mention name of partners of the firm

prakash (Company Secretary) (1352 Points)
Replied 17 February 2012

Partnership firm is not considered as artificial person in eye of law, so that it cannot be member/shareholders of any company but partners of firms can be members of company. the section 187c is applicable if company is beneficiary owner, in our case 187C is not applicable. whole transaction is invalid, consider the matter in board meeting and transfer shares in the name of partners.

Shridhi Jain (Company Secretary) (1678 Points)
Replied 17 February 2012

in Sec. 187c nowhere is written that beneficiary can only be company, it can be any person.

And I think this section is applicable for pub as well as pvt co. Am i right? It is written in the law that the co. has to file eform 22B. Ours is a pvt ltd co.

RISHI (searching ) (85 Points)
Replied 17 February 2012

A partnership firm is not a legal person and so much it cannot in its own name become member of company. however it can become a member of of section 25 company...

Regrad

Rishi Shankar Kumar.

CS Rajveer Rai, Gurgaon (CS) (646 Points)
Replied 18 February 2012

yes shridhiji it is not mentioned in 187c about company but it is 'ANY PERSON' it means natural person or artificial person as firm is not in both category so it should be construed as 'company'.

Shridhi Jain (Company Secretary) (1678 Points)
Replied 18 February 2012

Thanks sir,

It means no compliance is reqd as per Company law. Only partners can hold the shares in there name and firm cant b the beneficiary.

Practically, we show that the partners are holding shares, either jointly or severelly and firm is nowhere in the picture.

The issue is that payment has been made by the firm so can it b possible that payment is made by firm but the shares are in the name of the partners. How can we show it in the books of accounts?